Reference no: EM132466494
You have decided to place a market order to buy 8,000 shares of stock ABC at and ask price of $30.00 per share. Your broker offers you a financing fee of 0% annual, your initial margin is 45% and your maintenance margin is 30%.
a) What is the minimum amount of equity required to place the order?
b) Suppose that you hold the 8,000 shares over a year. If the share price one year from now can be either $33.00 or $27.00, compute the return (over equity) one year from now (both scenarios).
c) If the price is $27.00, do you have a margin call?
d) Compute the share price that triggers a margin call.
e) If the share price is $23.57, compute the additional amount of equity required to restore the margin account to the maintenance margin. How does your answer to a), b), c), d) and e) change if the broker offers you a financing fee of 5%? Discuss.
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