Please just answer Q6!!!!

Q5. You take out a long position on Apple shares on March 15th (103.38 per share), and have $5,000 of your own money available to do so. You also take out the maximum loan amount from a 40% margin account. The minimum maintenance requirement is 30%. Calculate the equity remaining in the account on September 15th (115.57) under the assumption of 5% interest on the margin loan. Please tabulate the opening position and the closing position.

Answer:

This account has a margin loan of 40% meaning that your $5,000 represents 60% of the total investment.

We can calculate that the total investment is $8,333.33

The margin loan is $3,333.33 The total investment allows the purchase of 8061 shares (833333 cents / 103.38)

Hence the opening position of the account is: (All figures in cents)

Assets		Liabilities
shares	833,333	Borrowed	333,333
		Equity	500,555
total	833,333	Total	833,333

The loan attracts interest of 5% so it means that 2.5% in the 6 months that the account is held On a loan of 3,333.33 this means that the new value is 333333 1.025 = 341666

The 8061 shares are worth 8061 115.57 = 931,610

Hence the closing position of the account is: (All figures in cents)

Assets		Liabilities
shares	931,610	Borrowed	341,666
		Equity	589,944
total	931,610	Total	931,610

The increase in equity is 89,944 (589,944-500,000), a return for the 6 months of approximately 18% (89,944/500,000). We do not know if this is a good return without assessing the rest of the market or the risk that it was achieved under.

Q6:

Would you advise investors to buy shares in Apple? (Use both the conclusion you have drawn in Question 5 and the theory you have learned in this course)

(hints:

There are no correct answers to this but there should be evidence of the following for at least TWO factors:

• Definition of risk + return

• What constitutes a good investment under risk+return

• Example or further clarification

  After this the remaining marks should be allocated for:

• Introduction

• Bringing risk + return together

• Final recommendation

• Relationship to Apple / Data)