# Essay on Capital Market Solution

1228 Words5 Pages
Chapter 1

4. Although we stated that real assets comprise the true productive capacity of an economy, it is hard to conceive of a modern economy without well-developed financial markets and security types. How would the productive capacity of the U.S. economy be affected if there were no markets in which one could trade financial assets? Financial assets are the claims on real assets. By involving in the financial market, companies find it more accessible to the external financial resources. With the help of financial market, companies can raise money simply by issuing stocks or securities. On the other hand, since the stock price is usually an indicator of the profitability of a certain company, investors do not need to spend a
If the maintenance margin requirement is 30%, will she receive a margin call?
c. What is the rate of return on her investment?

A: margin=300*40-4000=8000
B: remaining margin=300*30-4000*1.08=4680, the percentage margin is 4680/9000=52%, since the percentage margin is higher than the maintenance margin, she will not receive a margin call.
C: rate of return=(4680-8000)/8000=-41.5%

10. You are bearish on Telecom and decide to sell short 100 shares at the current market price of \$50 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 mar- gin is 30% of the value of the short position?
A: Cash or Securities=100*50*50%=2500
B: Percentage Margin=Equity/Value of the Stock Owned=((2500+50*100)-100P)/100P=30%, so when the price is \$57.69 or higher, investors will get a margin call.

11. Suppose that Intel currently is selling at \$40 per share. You buy 500 shares using \$15,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 8%.
a. What is the percentage increase in the net worth of your brokerage account if the price of Intel immediately changes to: (i) \$44; (ii) \$40; (iii) \$36? What is the