Assume you just purchased 250 shares of Home Depot at $40 per share, and 50 perc

Question

Assume you just purchased 250 shares of Home Depot at $40 per share, and 50 percent of this was purchased on the margin.Fill in the blanks to determine your contribution to this transaction: Total cost Amount borrowed Contribution What would happen to your investment if the price of Home Depot stock rose to $50 per share (ignoring any possible dividends)? Total value Loan Margin What was your profit? What would happen to your investment if the price of Home Depot stock fell to $30 per share (ignoring any possible dividends)? Total value Load Margin What was your loss?

Explanation / Answer

1) total cost = 40*250 = 10,000

amount borrowed = 10,000/2 = $5000

contribution = $5000

2) total value = 250*50 = $12,500

Loan = $5000

margin = $$7,500

Profit = $2500

3) TOtal value = 250*30 = $7500

Loan = $5000

Margin = $2500

Loss = $2500

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