Company X stock is currently selling at $10 per share but they are positioning very well...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Company X stock is currently selling at $10 per share but they are positioning very well at the market and are continuously increasing their sales and profits. You have $5000 and want to invest in these shares. But your broker advises you to buy on margin, as the stock price is about to increase. So, you borrow another $5000 from your broker at the interest rate of 5% and invest in 1000 shares of Company X stock. A) Calculate the initial margin and set the initial balance sheet. B) If the maintenance margin is 30%, how far can the stock price fall before the investor gets a margin call? C) What will be the rate of return if the price of stock fell to $7? Company X stock is currently selling at $10 per share but they are positioning very well at the market and are continuously increasing their sales and profits. You have $5000 and want to invest in these shares. But your broker advises you to buy on margin, as the stock price is about to increase. So, you borrow another $5000 from your broker at the interest rate of 5% and invest in 1000 shares of Company X stock. A) Calculate the initial margin and set the initial balance sheet. B) If the maintenance margin is 30%, how far can the stock price fall before the investor gets a margin call? C) What will be the rate of return if the price of stock fell to $7?
Expert Answer:
Related Book For
Corporate Finance
ISBN: 978-0077861759
10th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
Posted Date:
Students also viewed these accounting questions
-
The Smythe Corporation's common stock is currently selling at $100 per share which represents a P/E ratio of 10. If the firm has 100 shares of common stock outstanding, a return on equity of 0.20,...
-
The common stock of Alexander Hamilton Inc. is currently selling at $120 per share. The directors wish to reduce the share price and increase share volume prior to a new issue. The per share par...
-
The XYZ Company, whose common stock is currently selling for $40 per share, is expected to pay a $2.00 dividend in the coming year. If investors believe that the expected rate of return on XYZ is...
-
Passenger table (passengerid, address etc.) Flight table (flight id, departure, destination, depDate) Booking table (cID, fid, date, cost) a. Find Passengers who live in Chicago b. Total number of...
-
You lend a friend $15,000, for which your friend will repay you $37,313 at the end of five years. What interest rate are you charging your friend?
-
The Benevolent Company has agreed to lend you funds to complete the last year of your degree. The Company will lend you $2,400 today, if you agree to repay a lump sum of $4,000 4 years from now. What...
-
Match the term with its definition by placing the corresponding letter in the space provided: 1. A written promise to pay a specified amount of money at a particular future date 2. The date when...
-
CMD Asset Management has the following fee structure for clients in its equity fund: 1.00% of first $5 million invested 0.75% of next $5 million invested 0.60% of next $10 million invested 0.40%...
-
3. For what value(s) of x is the denominator equal to zero? (x+1)(x-12) (a) 7x - 3 x+x-12 (b) (x - 8)2
-
Tameka wants you to consider a hybrid aggregate plan, using up to the maximum overtime per employee for any period where demand cannot be satisfied with the current regular-time production and the...
-
For this case Study; 1- list 4 categories of Direct Quality Costs. 2- Calculate the cost in each category. 3- Calculate Total Direct Cost of Quality. 4- Calculate the percentage of cost for each...
-
The City of Troy collects its annual property taxes late in its fiscal year. Consequently, each year it must finance part of its operating budget using tax anticipation notes. The notes are repaid...
-
In the age of autonomous vehicles, can a car manufacturer be held liable for a crash caused by a malfunctioning self-driving system, especially if the system was activated with the driver's consent...
-
To select your target investment, assume you have pulled together $2,000,000 of equity using money from your savings and that of your friends and family so you want to be sure to invest these funds...
-
1. What information about Susan and her life would be helpful to assist in her defense? 2. What are some of the challenges Susan might have in using the Battered Woman Syndrome defense? 3. As a...
-
A recession appears imminent, and you're a financial advisor managing a portfolio for a risk-averse couple nearing retirement. They have a significant portion of their wealth invested in a...
-
Create a 3.html and a3.js files and link the two files. Your HTML page must not have any validation errors and should have a descriptive title, descriptive ids, and proper style. Part 1: Valid...
-
Use of the contraceptive Depo Provera appears to triple women's risk of infection with chlamydia and gonorrhea , a study reports today. An estimated 20 million to 30 million women worldwide use Depo...
-
You have recently been hired by Keafer Manufacturing to work in its established treasury department. Keafer Manufacturing is a small company that produces highly customized cardboard boxes in a...
-
Consider the following premerger information about a bidding firm (Firm B) and a target firm (Firm T). Assume that both firms have no debt outstanding. Firm B has estimated that the value of the...
-
Bill plans to open a self-serve grooming center in a storefront. The grooming equipment will cost $ 385,000, to be paid immediately. Bill expects aftertax cash inflows of $ 84,000 annually for seven...
-
Restore the file Wild Water Sports Ch 06A (Backup) you downloaded from the student companion site and then save it as Wild Water Sports Ch 06A. If you are asked to setup an external accountant user,...
-
You must have completed Exercise 1 in this chapter to complete this exercise. Restore the backup file you created in Exercise 1. Change the company name to Boston Catering Ch 6 Ex 2. Add the...
-
You must have completed Exercise 1 in this chapter to complete this exercise. Restore the backup file you created in Exercise 1. Change the company name to Boston Catering Ch 6 Ex 3. Add the...
Study smarter with the SolutionInn App