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DVU Margin Trading Questions

DVU Margin Trading Questions


Answer the 6 questions. Question 1 is on the document attached.


2. Dée Trader opens a brokerage account and purchases 300 shares of Internet Dreams at $36 per share. She borrows $4,500 from her broker to help pay for the purchase. The interest rate on the loan is 11%.

a. What is the margin in Dée’s account when she first purchases the stock?

b. If the share price falls to $26 per share by the end of the year, what is the remaining margin in her account?

c. If the maintenance margin requirement is 30%, will she receive a margin call?

d. What is the rate of return on her investment? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

3. You are bullish on Telecom stock. The current market price is $110 per share, and you have $22,000 of your own to invest. You borrow an additional $22,000 from your broker at an interest rate of 6.6% per year and invest $44,000 in the stock.

a. What will be your rate of return if the price of Telecom stock goes up by 8% during the next year? (Ignore the expected dividend.) (Round your answer to 2 decimal places.)

b. How far does the price of Telecom stock have to fall for you to get a margin call if the maintenance margin is 30%? Assume the price fall happens immediately. (Round your answer to 2 decimal places.)

4. You are bearish on Telecom and decide to sell short 100 shares at the current market price of $49 per share.

a. How much in cash or securities must you put into your brokerage account if the broker’s initial margin requirement is 50% of the value of the short position?

b. How high can the price of the stock go before you get a margin call if the maintenance margin is 30% of the value of the short position? (Round your answer to 2 decimal places.)

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