simran has brokerage account and intends to purchase 300 shares of TAta at r.s 4
ID: 1175290 • Letter: S
Question
simran has brokerage account and intends to purchase 300 shares of TAta at r.s 40 per share. she has available capital is 8,000. she ask her broker for a broker’s call with the interest rate on the loan at 8% per year. the interest payment happens end of the year.
What is the percentage margin in your account when she purchased the 300 shares
If stock price falls to r.s 20 per share by the end of the year, what is the remaining margin in your account? (express margin in Ruppees)
Suppose price drops to R.S 20 per share at the end of the year, what will be her total rate of return of the investment?
Explanation / Answer
Answer:
Purchase amount = 300 shares * 40 = 12,000
Capital available = 8,000
Capital requirement or margin required = 12,000 - 8000 = 4,000
Her margin = 8000/12000 =66.67%
Broker margin = 4000/12000=33.33%
Stock falls 20 per share
Then , the remaining margin = 300*20 = 6000
Simran margin account = 6000*66.67% = 4,000.
Total rate of return :-
Initial investment = (8000+4000)=12000
Total cost = 8000+4000+(4000*8%)
= 12,320
Profit or loss = final value at the end - cost
= (300*20) - 12,320
= 6000 - 12,320
= - 6320(loss)
Rate of return = - 6320/12,320*100 = - 51.30%
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