Investments
Investments
11th Edition
ISBN: 9781259277177
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
Question
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Chapter 3, Problem 9PS
Summary Introduction

(A)

Adequate information:

The current price in the market accounts for $50. The money available for investment is $5,000. The investor also borrowed money from the broker which amounts to $5,000 at a 8 % rate of interest.

To calculate:

The annual rate of return that must be earned by the investor if there is an increase of 10% in the telecom stock price

Introduction:

Rate of return refers to the ratio of loss or profit ascertained in the financial year with respect to the investment which is generally expressed in percentage of decrease or increase in the investment's value during the given period of time.

Summary Introduction

(B)

To calculate:

The fall in the price of the telecom 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 are bullish on Telecom stock. The current market price is $50 per share, and you have $5,000 of your own to invest. You borrow an additional $5,000 from your broker at an interest rate of 8% per year and invest $10,000 in the stock.a. What will be your rate of return if the price of Telecom stock goes up by 10% during the next year? The stock currently pays no dividends.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.
You are bullish on IT stock. The current market price is OMR70 per share, and you have OMR8,000 of your own to invest. You borrow an additional OMR7,000 from your broker at an interest rate of 7% per year and invest OMR15,000 in the stock.   What will be your rate of return if the price of Telecom stock goes up by 15% during the next year? The stock currently pays no dividends.   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.
You are bullish on IT stock. The current market price is OMR70 per share, and you have OMR8,000 of your own to invest. You borrow an additional OMR7,000 from your broker at an interest rate of 7% per year and invest OMR15,000 in the stock.   What will be your rate of return if the price of Telecom stock goes up by 15% during the next year? The stock currently pays no dividends.   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.     Kim opens a brokerage account and purchases 500 shares of Batliboy at OMR50 per share. She borrows OMR5,000 from her broker to help pay for the purchase. The interest rate on the loan is 7%   What is the margin in Kim's account when she first purchases the stock   If the share price falls to OMR40 per share by the end of the year, what is the remaining margin in her account? If the maintenance margin requirement is 30%, will she receive a…
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