Investments
Investments
11th Edition
ISBN: 9781259277177
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 3, Problem 15PS
Summary Introduction

(A)

Adequate information

The investor borrowed $20,000 to purchase shares of Worley. The price at which the stock is currently prevailing accounts for $40. The initial requirement of margin is 50%. The maintenance margin accounts for 35%. There is a fall in price of share after two days and accounts for $35 per share.

To determine:

Whether the investor will receive the margin call

Introduction:

The margin in the trading account refers to the minimum amount of money, which the investor is required to maintain in his account in the form of margin for placing a trade order.

Summary Introduction

(B)

To calculate:

The price of the stock that enables the investor to get margin call

Introduction:

Margin call comes into picture when the investor is required to deposit additional securities or money so that the margin in the investor's account stands equivalent to the minimum margin requirement.

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You have borrowed $45,000 on margin to buy shares in Tencent, which is now selling at $120 per share.  Your account starts at the initial margin requirement of 50%.  The maintenance margin is 30%.  Two days later, the stock price falls to $105 per share. a. What is the current margin and will you recieve a margin call? b. How low can the price of the shares fall before you recieve a margin call?
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You have borrowed $45,000 on margin to buy shares in Tencent, which is now selling at $120 per share.  Your account starts at the initial margin requirement of 50%.  The maintenance margin is 30%.  Two days later, the stock price falls to $105 per share. a. What is the current margin and will you recieve a margin call? b. How low can the price of Baidu shares fall before you recieve a margin call?
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