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

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

Problem 1PS

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Suppose your parents deposit $4,000 into an account at the end of each year for 11 years. The account earns an annual interest rate of 1.4%. After the final deposit, they move the accumulated savings to a brokerage account and invest in the stock market, where they earn an average annual return of 6.9% for the following 16 years. How much will they have in the account at the end? O a. $131,280 O b. $404,155 O c. $137,311 O d. $296,336 e. $302,138 f. $279,603 g. $496,270 h. $249,511
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