Business

Problem 1

You buy 100 shares of GE in a margin account at $60 a share

The initial margin is 40%

The cost of borrowing is 5% (from your broker)

The stock pays a dividend of $1 a share

The minimum maintenance requirement is 20%

1) In 1 year the stock rises to $80 – what is the percentage return on your investment?

2) Calculate the % return if you had not used margin (cash account)- why are they different?

Given that net worth = Assets (items of value) – Liabilities (things you owe)

3) What would your net worth be if the stock dropped to $35 in 1 year? Explain what would most likely happen in this scenario.

4) Calculate the price at which you will receive a margin call – base your calculation on the information that is present when you make the purchase – hence at time t=0

Problem 2

You sell short 100 shares of ABC at $75 a share

The initial margin is 50%

The cost of borrowing money in the margin account in 5%

Ignore cost of borrowing shares

The stock pays a dividend of $2 a share

The minimum maintenance requirement is 20%

5) Calculate the price at which you will receive a margin call – base your calculation on the information that is present when you initiate the short sale – hence at time t=0

6) In 2 years the stock rises to $100 a share – what is the annual percentage return on your investment?

7) What is the equity in your account after 2 years and would you have received a margin call before the 2-year time period elapsed? Explain

Introduce how the fed was created, who created it, why, and its vision for the country. Explain the possibility to buy or hold stock from the Federal Reserve System. Find the way to buy stock from the Federal Reserve System given to the fact that it gives 6% dividends of the profits to its stockholders.

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