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What is liability to the brokerage

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Reference no: EM132887669

You have $40,000 in your brokerage account. You want to use margin and buy as many as DIS shares as possible. You obtain the following information from your brokerage.

Equity $40000
initial margin 50%
maintenance margin 20%
Interest Rate 2%
DIS Today $200
DIS After one year $180

Problem 1: What is the maximum number of shares you can purchase in this margin account today?

Problem 2: Immediately after this purchase, how far can the DIS price drop before you receive a margin call?

Problem 3: Suppose you didn't make any transaction, and there is no margin call during this year. After one year, what is your liability to the brokerage?

Problem 4: After one year, how far can the price drop before you receive a margin call?

Problem 5: What is your net equity value ($) in your brokerage account for keeping this position for one year if DIS price is $180 at the end of the year?

Reference no: EM132887669

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