She buys on margin and the broker charges 10% interest on the loan.
(a) if the margin requirement is 55%, what is the maximum amount she can borrow?
(b)if she buys these stocks using the money borrowed and holds securities for a year how much interest must she pay?
(c)if after a year she sells DEM for $29 per share and GOP for $32 a share how much did she lost on her investment?
What is the percentage loss on the funds she invested if the interest payment is included in the calculation?
2007-02-26 06:52:35 · 4 answers · asked by Anonymous in Business & Finance ➔ Investing
Difficult question to answer. Most likely the GOP shares will be worthless because of an accounting scandal, which leaves you with 290
2007-02-26 07:11:05 · answer #1 · answered by mark 7 · 0⤊ 1⤋
Well, depending on who you have doing your books, you may not have a loss at all. If you do it properly, the GOP stock would have actually doubled in value due to tax incentives & exploration credits due to the company. Not to mention, they would have leveraged the hefty dividend payments in order to keep investors happy. As they will have also had at least 1 2:1 split. So just on those raw numbers, the margin would have been automatically paid for just with the increase in value.
On the other hand, you have the DEM stock. The same number cruncher would have told you that the performance of the GOP stock could have been even better, but the performance of DEM was holding it down for no particular reason. They have what appears to be strong performance but the price does not merit it. Same with GOP.
2007-02-26 07:54:20 · answer #2 · answered by ricks 5 · 0⤊ 0⤋
i'm examining your question in yet otherwise than others who've responded it. once you assert "on margin of 40%" I take that to advise you borrowed 40% of the cost and paid 60%. that could make your investment $2,4 hundred and your earnings $2,000, a share earnings of 2000/2400 or eighty 3.3%. in the USA "regulation T" could ward off you from paying for a inventory utilising a margin own loan of extra advantageous than 50% of the cost of the inventory.
2016-10-02 00:56:10 · answer #3 · answered by favaron 3 · 0⤊ 0⤋
Informative answers, just what I was looking for.
2016-09-21 01:44:06 · answer #4 · answered by ? 2 · 0⤊ 0⤋