BU111 Lecture Notes - Lecture 24: Capital Gain, Secured Loan
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BU111 Full Course Notes
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Engaging in a transaction whose value is greater than the actual dollars you have available. Benefit: able to buy more stocks/bonds for less potential for greater gains: downside: potential losses get larger, buying on margin. Put up only part of stock"s price; broker lends remainder (with interest) allows you to buy more than you could using just your own money realize greater profits, but also greater losses. Minimum requirements set and enforced by securities commission. You are speculating that the stock price will rise. Stock xyz is trading at 45$ per share. Less: 2% in 126 brokers expect commissions whenever they make a transaction for you. 2% out 154 when you sold the stock for 7700, you pay your broker again. Must sign hypothecation agreement (margin account agreement form) pledging secured loan. Cmv = current market value of the stock hence you can"t affect cmv, only loan.
