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problem1. Robin desires to purchase 1,000 shares of Anatop, Inc., which is selling for $5 per share. Anatop doesn’t pay dividends since all earning are reinvested in the firm to manage its successful R&D department. The brokerage firm will allow Robin to borrow funds with the initial margin requirement of 70 percent and a maintenance margin for 35 percent. The broker loan rate is 14 percent. Suppose that Robin borrows the maximum allowed by brokerage firm to buy the Anatop stock.

A. How much of her own money must Robin offer to purchase 1,000 shares of Anatop?

B. To what price Anatop drop before Robin will obtain a margin call from her broker?

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

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

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M93704

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