Problemrobin wants to purchase 1000 shares of anatop inc, Ask an Expert

Accounting

Problem:

Robin wants to purchase 1,000 shares of Anatop, Inc., which is selling for $5 per share. Anatop does not pay dividends because all earning are reinvested in the firm to maintain its successful R&D department. The brokerage firm will allow Robin to borrow funds with an initial margin requirement of 70 percent and a maintenance margin fof 35 percent. The broker loan rate is 14 percent. Assum that Robin borrows the maximum allowed by the brokerage firm to purchase the Anatop stock.

Required:

Question 1: How much of her own money must Robin provide to purchase 1,000 shares of Anatop?

Question 2: To what price can Anatop drop before Robin will receive a margin call from her broker?

Question 3: If the price of Anatop's stock is $7.50 in one year, what rate of return would Robin earn from her investment position?

Question 4: If the price of Anatop's stock is $4 in one year, what rate of return would Robin earn from her investment position?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91172215

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