BU111 Lecture 10: BU 111 - Lecture 10 - Economic Factors (continued)
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BU111 Full Course Notes
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Bu111 - lecture 10 - economic factors (continued) Engaging in a transaction whose value is greater than the actual dollars you have available. Creates potential to make a larger return or loss than indicated by the investment you have made. Selling short - deposit 50% of value of transaction. Buying on margin - invest part of value of transaction (margin requirement), broker lends the rest. Annual interest on the margin loan is 10%. Note: assume commissions/brokerage fees of 2% on all purchases and sales of stocks: go long - purchase ,300/ = 140 shares. Minimum margin requirement is 70% (in other words, your investment must be 70% of current market value; broker willing to lend 30% of cmv) Broker lends ,000-,300 = ,700 (notice that this is 30% of cmv) Must sign hypothecation agreement (margin account agreement form) -- pledging of securities as collateral for a loan.
