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Lecture 10

BUSI 3410U Lecture 10: Assignment 3

by OneClass619405 , Fall 2017
3 Pages
79 Views
Fall 2017

School
UOIT
Department
Business
Course Code
BUSI 3410U
Professor
Bin Chang
Lecture
10

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Financial Institutions Assignment 4
It is an individual assignment. Submit it online through webct.
Equity market
1. Margin account. Suppose the margin requirement is as follows.
p>=$2: 50% margin
$1.75<=P<$2: 40% margin
$1.50<=P<$1.75: 20% Margin
P<$1.50: No margin
A client buys 1,000 shares of ABC on margin at $1.8. What is the cash put up by the client? If
the prices falls to $1.6, what is the cash needed to put into the margin account?
Solution: The client put up $1080. If the price falls to $1.6, he will put $400 into the margin
account.
Client buys 1,000 shares of ABC on margin at $1.8
Cost: $1,800=1000*1.8
Margin loan @ 40%: 720=1800*40%
Margin: ie., cash put up by client: $1,080=1800-720
If price falls to $1.60
New Value: $1,600=1000*1.6
Margin Loan @ 20%: 320=1600*20%
Current equity: $ 880 =original margin-loss in equity
=1080-1000*(1.8-1.6)
Margin Call, ie., extra cash needed $ 400
=new value-new margin loan-current
equity=1600-320-880
2. Short selling. Suppose that minimum credit for short sales is as follows.
P>$2 150% of market value
A Client wants to sell 1,000 shares of ABC at $10. What is the minimum margin required? If
ABC’s share increases to $15, what is the cash needed to put into the margin account?
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Description
Financial Institutions Assignment 4 It is an individual assignment. Submit it online through webct. Equity market 1. Margin account. Suppose the margin requirement is as follows. p>=2: 50 margin 1.75<=P<2: 40 margin 1.50<=P<1.75: 20 Margin P<1.50: No margin A client buys 1,000 shares of ABC on margin at 1.8. What is the cash put up by the client? If the prices falls to 1.6, what is the cash needed to put into the margin account? Solution: The client put up 1080. If the price falls to 1.6, he will put 400 into the margin account. Client buys 1,000 shares of ABC on margin at 1.8 Cost: 1,800=1000*1.8 Margin loan @ 40: 720=1800*40 Margin: ie., cash put up by client: 1,080=1800720 If price falls to 1.60 New Value: 1,600=1000*1.6 Margin Loan @ 20: 320=1600*20 Current equity: 880 =original marginloss in equity =10801000*(1.81.6) Margin Call, ie., extra cash needed 400 =new valuenew margin loancurrent equity=1600320880 2. Short selling. Suppose that minimum credit for short sales is as follows. P>2 150 of market value A Client wants to sell 1,000 shares of ABC at 10. What is the minimum margin required? If ABCs share increases to 15, what is the cash needed to put into the margin account?
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