Chapter 3, Problem 15PS

Summary Introduction

(A)

A brokerage account is opened by Dee trader and 300 share of Internet Dreams is purchased at a price of $40 per share. Dee has borrowed an amount of $4,000 to pay for its purchases from the broker. The rate of interest charged by the broker on the loan stand to be 8%.

To calculate:

The margin in Dee's account when the stock were first purchased by her.

Introduction:

Stock stands to be the general term which is taken into consideration for describing the company's ownership certificates. On the other hand share refers to the company's stock certificate. When a share of a particular company is held by an investor, he is known as a shareholder.

Summary Introduction

(B)

To calculate:

The remaining margin in Dee's account if the price per share falls to $30

Introduction:

Margin in the trading account refers to the minimum amount of money, which the investor is required to maintain in his account in the form of margin for placing a trade order.

Summary Introduction

(C)

To determine:

Whether Dee will be able to receive the margin call if the requirement for margin maintenance is 30%

Introduction:

Margin call comes into picture when the investor is required to deposit additional securities or money so that the margin in the investor's account stands equivalent to the minimum margin requirement.

Summary Introduction

(D)

To calculate:

Rate of return on the investment made by Dee

Introduction:

Rate of return refers to the net loss or gain ascertained out of an investment over a particular period of time. It is generally represented as percentage of the initial cost of investment.