Explore BrainMass

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

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

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.

First:
Assume that the investor give an order to his broker to buy on margin 200 shares from stock (A) which has a price of \$ 80 per share and another order to buy on margin 200 share from stock (B) with the market price of \$ 48.
1) Prepare a balance sheet for this investor if the initial margin is 60%.
2) Assume that the price of stock (A) goes up to \$88, and the price of stock (B) decline to \$ 20, do you think that the investor will receive a margin call if the maitenance marging (MM) is 30%?

#### Solution Summary

An explanation of buying on margin and aggregate buying on margins is provided.

\$2.19