[zacharie101]

1. You are bearish on TZD stock. You decide to short-sell 250 shares at the current price of $ 90 a share. You give $ 10,000 to your broker to establish your margin account. TZD will pay a year-end dividend of $ 1 per share. In addition, the broker will pay a 9% annual interest rate on your initial deposit.

A) What is the remaining margin in the account if TZD trades for $ 95 per share at year-end?

(95*250)= 23750 Initital Margin
(95-90)*250 = 1250 Losses
1*250 = 250 Dividend Per Share
23750-1250-250 = 22250 Remaining Margin

B) Assume that a year has passed. How far does the price of TZD stock have to rise for you to get a margin call if the maintenance margin is 25%?

90*250= 22,500 22500+10000=35,000
250p-32500/250p=.25
250p-32500= 62.5p
187.5p = 32500
p = 173.3333333

C) What is the rate of return on your investment if TZD trades for $75 per share at year-end?

(75*250)= 18750 Initital Margin
(75-90)*250 = -3750 Losses
1*250 = 250 Dividend Per Share
18750-(-3750)-250 = 22,250 Remaining Margin

(22250-18750)/18750 = 0.186666667 Rate of Return


2. You are bullish on stock XYZ. The current price is $ 100 a share. The initial margin rate is 50% and the interest rate applied on margin accounts is 8%. You wish to purchase 100 shares.

A) What is your margin account (equity) at the time of the purchase?
(100*100)*(.50) = 5000 Margin


B) How far does the price of XYZ stock have to immediately fall for you to get a margin call if the maintenance margin is 25%?
100p-5000/100p=.25
100p-5000=25p
75p=5000
p = 66.66666667

C) Assume that the price of XYZ stock is $ 110 after a year and that a $ 2 per share dividend is paid at the end of the year. What is the rate of return on your investment?

(110-100)*(2*100) = 2000
(2000-5000)/5000 = -.60 Rate of Return