You buy 200 shares of ABC at 70$ a share. You borrow from your broker and your
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Question:
1) How much of your own money have you used?
2) After bad earning news, the price of ABC shares falls to 30$ per share.
a) What is your margin now?
b) Your account has a maintenance margin of 30%. You receive a margin call from your broker. This means you will have to pay off some of the loan the broker made to you, until your margin is above the maintenance margin. How much cash do you put into your account (how much do you pay off)? Assume you do not sell any shares.
c) Suppose you were on holiday while ABC was crashing, and you did not see the messages your broker left you about the margin call. The broker then sells some of your ABC shares (at the current market price) to pay down your loan. How many shares does he sell? How many shares do you owe your broker now?
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
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