7. ABC stock is currently selling for $467 per share. Suppose that you buy 100 shares...

 

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7. ABC stock is currently selling for $467 per share. Suppose that you buy 100 shares of ABC with $30,000 of your own money and you have borrowed the reminder from your broker. The rate on the margin loan is 6%. Your broker requires an initial margin of 50 percent and a maintenance margin of 30 percent. a. What is the rate of return on your margined position if ABC is selling after one year at $527? (Hint: Please take your interest expense into account.) b. At what price and below would you receive a margin call? (You can ignore the interest incomes or expenses in the margin account) 7. ABC stock is currently selling for $467 per share. Suppose that you buy 100 shares of ABC with $30,000 of your own money and you have borrowed the reminder from your broker. The rate on the margin loan is 6%. Your broker requires an initial margin of 50 percent and a maintenance margin of 30 percent. a. What is the rate of return on your margined position if ABC is selling after one year at $527? (Hint: Please take your interest expense into account.) b. At what price and below would you receive a margin call? (You can ignore the interest incomes or expenses in the margin account)

Answer rating: 100% (QA)

a Rate of Return on Margined Position The initial investment made by the investor is 30000 which covers 50 of the total cost of the 100 shares at the current market price of 467 Therefore the total co... View the full answer