Question: EXERCISE #1: The margin requirements are : Initial 50/Maintenance 40. Ignore interest. ABC shares trade at $90. You buy 300 shares for $90 per share

EXERCISE #1: The margin requirements are : Initial 50/Maintenance 40. Ignore interest. ABC shares trade at $90. You buy 300 shares for $90 per share in your margin account.

The total value of shares is $ ...............................................................

The margin amount (the amount of money you post) is $..................................

A. Stock goes up to $100 i.e. 11.1%. The total value of shares is $ .....................

You sell the shares, repay the borrowing and you have $.............. left in the account. Your percentage profit is: (Final amt Posted Margin) / Posted Margin ............................................... %

B. Ignore A. Stock goes down to $80 i.e. 11.1%. The total value of shares is ..................

You sell the shares, repay the borrowing and you have $.............. left in the account. Your percentage profit is: (Final amt Posted Margin) / Posted Margin = ........................................ %

C. At what stock price (down) will you get the margin call (i.e. to post more money in the account)?

0.40 = (.............. ............) / 300P Solve for P = $ ...............................

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