Assume you buy 100 shares of stock at $40 per share on margin (40 percent). If the price rises to $55 per share, what is your percentage gain on the initial equity? No of shares = 100; Price of stock = $40; Position taken = long Equity required in account (Initial Margin) = 40% x (100 shares x $40)= 40% x $4,000= $1,600 Gain percentage = {[(Current price -Entry price) no of shares]/Initial Margin} x 100 = {[($55 - $40) 100 shares] / $1,600} x 100 = $1,500 / $1,600 x 100 = 93.75% 2. In problem 1, what would the percentage loss on the initial equity be if the price had decreased to $28? Loss percentage = {[(current price – entry price) no of shares] / Initial Margin} x 100 = {[($28 - $40) 100 shares] / $1,600} x 100 = {[ -$12 x 100 shares] / $1,600} x 100 = -$1,200 / $1,600 x 100 = -75%3. Assume you have a 25 percent minimum margin standard in problems 1 and 2. With a price decline to $28, will you be called upon to put up more margin to meet the 25 percent rule? Disregard the $2,000 minimum margin balance requirement. 4. Recompute the answer to problem 3 based on a stock decline to $23.75. Assume you buy 100 shares of stock at $40 per share on margin (40 percent). If the price rises to $55per share, what is your percentage gain on the initial equity?1.No of shares = 100; Price of stock = $40; Position taken = longEquity required in account (Initial Margin) = 40% x (100 shares x $40)= 40% x $4,000= $1,600Gain percentage = {[(Current price -Entry price) no of shares]/Initial Margin} x 100= {[($55 - $40) 100 shares] / $1,600} x 100= $1,500 / $1,600 x 100= 93.75%2. In problem 1, what would the percentage loss on the initial equity be if the price had decreased to$28?Loss percentage = {[(current price – entry price) no of shares] / Initial Margin} x 100= {[($28 - $40) 100 shares] / $1,600} x 100= {[ -$12 x 100 shares] / $1,600} x 100= -$1,200 / $1,600 x 100= -75%Assume you have a 25 percent minimum margin standard in problems 1 and 2. With a price declineto $28, will you be called upon to put up more margin to meet the 25 percent rule? Disregard the$2,000 minimum margin balance requirement.3.4. Recompute the answer to problem 3 based on a stock decline to $23.75.

If the price declines to $28, then the market value of the securities will be $2,800 (100 shares x…

Answered: Assume you buy 100 shares of stock at…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Assume you buy 100 shares of stock at $40 per share on margin (40 percent). If the price rises to $55 per share, what is your percentage gain on the initial equity?

No of shares = 100; Price of stock = $40; Position taken = long

Equity required in account (Initial Margin) = 40% x (100 shares x $40)

= 40% x $4,000

= $1,600

Gain percentage = {[(Current price -Entry price) no of shares]/Initial Margin} x 100

= {[($55 - $40) 100 shares] / $1,600} x 100

= $1,500 / $1,600 x 100

= 93.75%

2. In problem 1, what would the percentage loss on the initial equity be if the price had decreased to $28?

Loss percentage = {[(current price – entry price) no of shares] / Initial Margin} x 100

= {[($28 - $40) 100 shares] / $1,600} x 100

= {[ -$12 x 100 shares] / $1,600} x 100

= -$1,200 / $1,600 x 100

= -75%

3. Assume you have a 25 percent minimum margin standard in problems 1 and 2. With a price decline to $28, will you be called upon to put up more margin to meet the 25 percent rule? Disregard the $2,000 minimum margin balance requirement.

4. Recompute the answer to problem 3 based on a stock decline to $23.75.