Question 4 You open a brokerage account and purchases 1000 shares of PepsiCo (PEP) at $50 per share. You borrow $20,000 from your broker to help pay for the purchase. The interest rate on the loan is 10%. a) What is the margin in your account when you first purchase the share? b) If the share price falls to $40 per share by the end of the year, 1) What is the remaining margin in your account? 2) If the maintenance margin requirement is 30%, will you receive a margin call? 3) What is the rate of return on your investment? c) Consider the following limit order book for PEP stock. The last trade in the stock occurred at a price of $49. If you use a market order to buy 200 additional PEP shares, at what price will it be filled? Limit buy orders Price $48.75 $48.70 $48.65 $48.60 Shares 500 600 630 550 Limit sell orders Price $48.80 $48.85 $48.90 $48.95 Shares 200 500 400 1000

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Question 4
You open a brokerage account and purchases 1000 shares of PepsiCo (PEP) at $50
per share. You borrow $20,000 from your broker to help pay for the purchase. The
interest rate on the loan is 10%.
a) What is the margin in your account when you first purchase the share?
b) If the share price falls to $40 per share by the end of the year,
1) What is the remaining margin in your account?
2) If the maintenance margin requirement is 30%, will you receive a margin call?
3) What is the rate of return on your investment?
c) Consider the following limit order book for PEP stock. The last trade in the stock
occurred at a price of $49. If you use a market order to buy 200 additional PEP
shares, at what price will it be filled?
Limit buy orders
Price
$48.75
$48.70
$48.65
$48.60
Shares
500
600
630
550
Limit sell orders
Price
$48.80
$48.85
$48.90
$48.95
Shares
200
500
400
1000
Transcribed Image Text:Question 4 You open a brokerage account and purchases 1000 shares of PepsiCo (PEP) at $50 per share. You borrow $20,000 from your broker to help pay for the purchase. The interest rate on the loan is 10%. a) What is the margin in your account when you first purchase the share? b) If the share price falls to $40 per share by the end of the year, 1) What is the remaining margin in your account? 2) If the maintenance margin requirement is 30%, will you receive a margin call? 3) What is the rate of return on your investment? c) Consider the following limit order book for PEP stock. The last trade in the stock occurred at a price of $49. If you use a market order to buy 200 additional PEP shares, at what price will it be filled? Limit buy orders Price $48.75 $48.70 $48.65 $48.60 Shares 500 600 630 550 Limit sell orders Price $48.80 $48.85 $48.90 $48.95 Shares 200 500 400 1000
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