Suppose you buy shares of a stock worth OMR20000, and the initial margin is 60% and...

 

 

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Suppose you buy shares of a stock worth OMR20000, and the initial margin is 60% and the maintenance margin is 30%. Suppose the interest rate you must pay is 6% on the borrowed money. Answer the following questions. (a) How much money must you pay the broker for the shares? How much have you borrowed from the broker? (b) Assume the value of the shares rises to OMR25000; a 25% return. Calculate the return on asset you purchased on margin. (c) Assume the value of the shares falls to OMR15000; a -25% return. Calculate the return you purchased on margin. (d) Given the above answers, what happens to risk when you buy a stock on margin? 2. Assume you buy 200 shares of stock and the stock price is OMR70, for a total value of OMR14000. Also assume the initial margin is 60% and the maintenance margin is 40%. Calculate the critical price at which there would be a margin call and interpret the result of margin call 3. Suppose you believe the price of a stock will fall. So, you sell short OMR2000 of the stock. Suppose the initial margin is 40% and the maintenance margin is 20%. (a) How much have you borrowed? How much equity do have in the account after the short sale? (b) Suppose the price of the stock falls to OMR1500. What is your equity in the account? (c) Suppose the price of the stock rises to OMR2500. What is your equity in the account? Suppose you buy shares of a stock worth OMR20000, and the initial margin is 60% and the maintenance margin is 30%. Suppose the interest rate you must pay is 6% on the borrowed money. Answer the following questions. (a) How much money must you pay the broker for the shares? How much have you borrowed from the broker? (b) Assume the value of the shares rises to OMR25000; a 25% return. Calculate the return on asset you purchased on margin. (c) Assume the value of the shares falls to OMR15000; a -25% return. Calculate the return you purchased on margin. (d) Given the above answers, what happens to risk when you buy a stock on margin? 2. Assume you buy 200 shares of stock and the stock price is OMR70, for a total value of OMR14000. Also assume the initial margin is 60% and the maintenance margin is 40%. Calculate the critical price at which there would be a margin call and interpret the result of margin call 3. Suppose you believe the price of a stock will fall. So, you sell short OMR2000 of the stock. Suppose the initial margin is 40% and the maintenance margin is 20%. (a) How much have you borrowed? How much equity do have in the account after the short sale? (b) Suppose the price of the stock falls to OMR1500. What is your equity in the account? (c) Suppose the price of the stock rises to OMR2500. What is your equity in the account?

Answer rating: 100% (QA)

a You must pay the broker OMR12000 for the shares and you have borrowed OMR8000 from the broker b The return on asset you purchased on margin is 25 as the value of the shares rose to OMR25000 This can ... View the full answer