Respuesta :
Answer:
A) Dee´s Margin = 58.33%; B) Remaining Margin if price drops to $26 is 30.56% C) She won´t receive a margin call (but close...)
D) Rate of Return = - 32.36%
Explanation:
Hi, first let´s find out what the initial margin is, for that we have to use the following formula.
[tex]Margin=\frac{Equity}{ValueStocks}[/tex]
Now, in order to find the equity, we have to find the total value of the stocks and substract the debt from it, since it was 300 shares at $30 per share, the total value of the investment is $7,800, therefore, its equity is $3,300 ($7,800-$4,500).
So everything should look like this
[tex]Margin=\frac{6,300}{10,800} =0.5833[/tex]
So the initial margin was 58.33%
If the price drops to $26 by the end of the year, the remaining margin in her account is:
[tex]Margin=\frac{3,300}{10,800} =0.3056[/tex]
So the remaining margin one year later, after the stock price dropped to $26 was 30.56%
Now, in order to find the rate of return on her investment, at the end of the year, we have to remember that the money loaned was at 11%, therefore, the best way to find out the return of this investment is to convert this into money, like such.
First (Gross Return of the stock)
[tex]Gross Return=\frac{Final.P-Initial.P}{Initial.P} x100[/tex]
[tex]Gross Return=\frac{26-36}{36} x100=-0.2778[/tex]
Ok, we have the gross return, which is -$27.78%
The interest expenses are just as follows.
[tex]Interest Expense=4,500*0.11=-495[/tex]
To find the return on the investmen, we need to use the following formula.
[tex]RateReturn=\frac{FinalInvestment-InitialInvestment}{InitialInvesment} x100[/tex]
The final investment is: Gross return($)+interest Expenses
[tex]FinalInvest=\frac{300*(-10)+(-4,500*0.11)}{10,800} =-0.3236[/tex]
This means that, by the end of the year, her return on the investment was -32.36%. In money, this is - $3,495.
Best of luck.
