1) An investor buys $10,000 worth of stock using 50% margin. If the stock price increases by 20%, what return does the investor earn? (ignore transaction costs and interest fees)
a) 10%
b) 20%
c) 30%
d) 40%
USE THE FOLLOWING INFORMATION FOR THE NEXT THREE PROBLEMS
Jack has a margin account and deposits $25,000. If the margin requirement is 40 percent, commissions are ignored, and Irish Industries is currently selling at $45 per share:
2) What is the value of stock that Jack can acquire?
a) $41,667
b) $62,500
c) $75,000
d) $87,500
e) $91,200
3) What is Jack's profit if the price of Irish Industries rises to $55?
a) $ 5,555
b) $ 9,259
c) $13,895
d) $23,598
e) $27,400
4) If the maintenance margin is 20 percent, to what price can Irish Industries fall before Jack receives a margin call?
a) $21.75
b) $23.75
c) $33.75
d) $35.75
e) None of the above