1. Fire Trader opens a brokerage account and purchases 300 shares of Internet Dreams at $40...

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1. Fire Trader opens a brokerage account and purchases 300 shares of Internet Dreams at $40 per share. She borrows $4,000 from her broker to help pay for the purchase. The interest rate on the loan is 8%. a. What is the margin in Fire's account when she first purchases the stock? b. If the share price falls to $30 per share by the end of the year, what is the remaining margin in her account? If the maintenance margin requirement is 30%, will she receive a margin call? c. What is the rate of return on her investment? 2. Suppose that you sell short 1,000 shares of Haman, currently selling for $20 per share, and give your broker $15,000 to establish your margin account. a. If the maintenance margin is 25%, how high can Haman's price rise before you get a margin call? b. If you earn no interest on the funds in your margin account, what will be your rate of return after one year if Haman stock is selling at: (i) $22; (ii) $20; (iii) $18? Assume that Haman pays no dividends. 3. You've borrowed $20,000 on margin to buy shares in Zaman Inc, which is now selling at $40 per share. Your account starts at the initial margin requirement of 50%. The maintenance margin is 35%. Two days later, the stock price falls to $35 per share. a. Will you receive a margin call? b. How low can the price of Zaman shares fall before you receive a margin call? 4. You are bearish on Telecom and decide to sell short 100 shares at the current market price of $50 per share. a. How much in cash or securities must you put into your brokerage account if the broker's initial margin requirement is 50% of the value of the short position? b. How high can the price of the stock go before you get a margin call if the maintenance margin is 30% of the value of the short position? 5. There are 2 Mutual Funds with different fee structures: Fund A: charges a 12b-1 fee of 1.0% and maintains an expense ratio of 0.75%. Fund B: charges a front-end load of 2% but has no 12b-1 fee and an expense ratio of 0.25%. Assume the rate of return on both funds' portfolios (before any fees) is 6% per year. How much will an investment in each fund grow to after: a. 1 year? b. 3 years? c. 10 years? d. 30 years? 1. Fire Trader opens a brokerage account and purchases 300 shares of Internet Dreams at $40 per share. She borrows $4,000 from her broker to help pay for the purchase. The interest rate on the loan is 8%. a. What is the margin in Fire's account when she first purchases the stock? b. If the share price falls to $30 per share by the end of the year, what is the remaining margin in her account? If the maintenance margin requirement is 30%, will she receive a margin call? c. What is the rate of return on her investment? 2. Suppose that you sell short 1,000 shares of Haman, currently selling for $20 per share, and give your broker $15,000 to establish your margin account. a. If the maintenance margin is 25%, how high can Haman's price rise before you get a margin call? b. If you earn no interest on the funds in your margin account, what will be your rate of return after one year if Haman stock is selling at: (i) $22; (ii) $20; (iii) $18? Assume that Haman pays no dividends. 3. You've borrowed $20,000 on margin to buy shares in Zaman Inc, which is now selling at $40 per share. Your account starts at the initial margin requirement of 50%. The maintenance margin is 35%. Two days later, the stock price falls to $35 per share. a. Will you receive a margin call? b. How low can the price of Zaman shares fall before you receive a margin call? 4. You are bearish on Telecom and decide to sell short 100 shares at the current market price of $50 per share. a. How much in cash or securities must you put into your brokerage account if the broker's initial margin requirement is 50% of the value of the short position? b. How high can the price of the stock go before you get a margin call if the maintenance margin is 30% of the value of the short position? 5. There are 2 Mutual Funds with different fee structures: Fund A: charges a 12b-1 fee of 1.0% and maintains an expense ratio of 0.75%. Fund B: charges a front-end load of 2% but has no 12b-1 fee and an expense ratio of 0.25%. Assume the rate of return on both funds' portfolios (before any fees) is 6% per year. How much will an investment in each fund grow to after: a. 1 year? b. 3 years? c. 10 years? d. 30 years?

Answer rating: 100% (QA)

1 Fire Traders Brokerage Account a Margin in Fires account when she first purchases the stock Cost of 300 shares at 40 per share 12000 Borrowed from b... View the full answer