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Chap- 4 Problems

Chap- 4 Problems

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Published by Shahin Akanda
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Published by: Shahin Akanda on Jun 16, 2012
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CHAPTER 4—ORGANIZATION AND FUNCTIONING OF SECURITIESMARKETS
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)Jackie has a margin account with a balance of $150,000. If the initial margin deposit is 60 percentand Turtle Industries is currently selling at $50 per share:28. How many shares of Turtle can Jackie purchase?Letting X = total investment, Jackie's share will represent 60 percent.Thus .60X = $150,000 and X = $150,000
÷
.60 = $250,000.At $50 per share, she can purchase ($250,000
÷
$50) = 5000 shares.29. What is Jackie's profit/loss if Turtle's price after one year is $40?Profit = (40
50)(5000) =
$50,00030. If the maintenance margin is 25 percent, to what price can Turtle Industries fall before Jackiereceives a margin call?Margin = (Market Value
Debit Balance)
÷
Market Value, whereDebit Balance = initial loan value = ($250,000
$150,000) = $100,000Market Value = Price
×
Number of Shares = 5000P
 
Thus 0.30 = (5000P
$100,000)
÷
(5000P)P = $26.67USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)Heidi Talbott has a margin account with a balance of $50,000. If the initial margin deposit is 50 percent, and RC Industries is currently selling at $50 per share:31. How many shares of RC can Heidi buy?Letting P = price and Q = quantity of shares,Heidi's share of the investment will = 50% of PQ.Thus 0.50PQ = $50,000 and PQ = $50,000/0.50 = $100,000
 
At $50 per share, she can purchase ($100,000
÷
$50) = 2000 shares.32. What is Heidi's profit if RC's price rises to $80?Profit = (80
50)(2000) = $60,00033. If the maintenance margin is 25 percent, to what price can RC Industries stock price fall before Heidireceives a margin call?Margin = (Market Value
Debit Balance)
÷
Market Value, whereDebit Balance = initial loan value = ($100,000
$50,000) = $50,000Market Value = Price
×
Number of Shares = 2000P
 
Thus 0.25 = (2000P
$60,000)
÷
(2000P)P = $33.33USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)Kathy Smith has a margin account with a balance of $60,000. If initial margin requirements are80 percent, and Jackson Industries is currently selling at $40 per share:34. How many shares of Jackson can Kathy buy?Letting P = price and Q = quantity of shares,Kathy's share will represent 80% of PQ.Thus 0.80X = $60,000 and X = $60,000
÷
.80 = $75,000.
 
At $40 per share, she can purchase ($75,000
÷
$40) = 1875 shares.35. What is Kathy's profit if Jackson's price rises to $50?Profit = (50
40)(1875) = $18,75036. If the maintenance margin is 25 percent, to what price can Jackson Industries fall before Kathyreceives a margin call?Margin = (Market Value
Debit Balance)
÷
Market Value, whereDebit Balance = initial loan value = ($75,000
$60,000) = $15,000Market Value = Price
×
Number of Shares = 1875PThus 0.25 = (1875P
$15,000)
÷
1875P

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