Share
Explore BrainMass

# Explanation of the Buying on Margin and Aggregate Buying on Margin

First:
Assume that the investor give an order to his broker to buy on margin 200 shares from stock (A) which has a purchasing price \$ 80 per share if you know that the initial marging is 60% show the investor balance sheet.

Second:
If the stock price decline to \$ 48 show the investor balance sheet and calculate the Actual Margin (AM).

Third:
If the maintenance margin = 30% and the stock price declined to be \$ 40 do you think that the investors will receive a margin call from the broker?

Fourth:
If the maintenance margin = 30% how far can the stock price fall before the investor get a margin call?

Fifth:
If the maintenance margin = 40% how far can the stock price fall before the investor get a margin call?

Sixth:
If the market price increased to be \$ 104 show the investor balance sheet and what is the type of this account in both cases (if the maintenance margin is 30% OR 40%)? (i.e. which of the following types? :-

SEE ATTACHED

Seventh:
Calculate the rate of return if the stock price increased to %96 and the interest rate is 10% and the dividends is \$1.6 per share and the fees is \$ 1 per share.

Eighth:
Recalculate the rate of return assuming that the investor bought the stocks in cash.