investment

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timer Asked: Jan 25th, 2018

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margin purchase and short sell investment

this question in finance course question

margin purchase and short sell investment

this question in finance course question margin purchase and short sell investment

this question in finance course question margin purchase and short sell investment

this question in finance course question margin purchase and short sell investment

this question in finance course question margin purchase and short sell investment

this question in finance course question margin purchase and short sell investment

this question in finance course question margin purchase and short sell investment

this question in finance course question margin purchase and short sell investment

this question in finance course question margin purchase and short sell investment

this question in finance course question margin purchase and short sell investment

this question in finance course question margin purchase and short sell investment

this question in finance course question margin purchase and short sell investment

this question in finance course question margin purchase and short sell investment

this question in finance course question margin purchase and short sell investment

this question in finance course question margin purchase and short sell investment

this question in finance course question margin purchase and short sell investment

this question in finance course question

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TEXT: CHAPTER 3: PROBLEMS 2, 3, 7, 13, 14, 18. Exactly six months ago, you purchased on a margin 15,000 shares of CITCO at an average ask price per share of $2.75. At the same time, you shorted 25,000 shares of SYSCO at an average bid price per share of $3.25. Interest on your margin purchase was set at 3.75 percent, compounded monthly. All three are Canadian stocks, and are therefore guided by the IDA rules. Margin on CITCO stocks is set at 30%, while that on SYSCO stock is set at 50%. Assume you used your maximum leverage available. a. How much equity did you put up with the broker when you initiated your margin account? b. Assume prices remain relatively stable over time, what range of equity is your margin account over-margined? c. Given that today, you observe the following prices for the stocks: Your broker requires that you maintain an aggregate equity margin ratio of at least 40 percent at all times to avoid margin call. CITCO SYSCO BID shares ASK shares BID shares ASK shares 2.25 2,000 3.10 2,500 2.25 3,500 2.85 15,000 2.45 6,500 3.25 5,000 2.40 6,500 3.00 8,000 2.65 8,000 3.50 4,500 2.50 5,000 3.15 6,000 2.85 5,000 3.70 8,500 2.60 4,500 3.25 5,000 3.00 3,500 3.85 5,500 2.75 8,000 3.40 10,500 1. Will you receive a margin call? Show your calculations. 2. Examining the individual margin accounts in relation to the aggregate, what conclusions can you draw from your positions? 3. Given that over the six-month period, CITCO paid dividends of $0.20 and SYSCO paid dividends of $0.45. What is the return on your equity if you decide to close your account?
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