An investor buys $8,000 worth of a stock priced at $40 per share using 50% initial margin. the broker charges 6% on the margin loan and requires a 30% maintenance margin. in 1 year the investor has interest payable and gets a margin call. at the time of the margin call the stock's price must have been

$30.285

Explanation:

Data provided in the question:

Worth of stocks = $8,000

Stock price = $40

Number of stocks = = 200

Initial margin = 50%

Broker charges = 6%

margin maintenance = 30% = 0.30

Now,

let At the time of the margin call the stock's price be 'x'

A margin call will occur if the ratio of Equity to the Market value will be 0.30 or less

thus,

0.30 =

here,

Equity = Market value - Initial margin - charges of broker

or

Equity = 200x - 0.50 × 8000 - 0.06 × (0.5 × 8000)

= 200x - 4000 - 240

Therefore,

0.30 =

or

60x = 200x - 4,240

or

140x = 4,240

or

x = $30.285

month 1 start amount =$3287.90 interest=(3287.90x0.0145/12)3.97 total to pay=$3291.81 paid =$1200 balance =$2,091.87

month 2 starting amount= $2,091.87 interest =$25.28 total to pay =$2117.15 paid =$1200 balance $917.15

month 3 starting amount =$917.15 interest =$11.08 total to pay =$928.23 paid =$928.23 balance =$0 total to pay 1200+1200+928.23 = $3328.23 it will take 3 months to pay a total of $3328.23

c.

clarify customers’ doubts only when asked.