You purchase 7,288 shares of ABC on March 1 at a price of $35.99 per share. ABC declares a dividend of $0.33 per share o
Posted: Tue Apr 26, 2022 10:53 am
You purchase 7,288 shares of ABC on March 1 at a price of $35.99
per share. ABC declares a dividend of $0.33 per share on March 31.
Simultaneously, on March 1, you sell SHORT 10,247 shares of XYZ at
a price of $23.37 per share. XYZ declares a dividend of $0.20 per
share on April 30. On May 31, ABC is down 7% and XYZ is up 10% from
their respective March 1 values. Assume that (A) your account's
equity on March 1 is $300,000 all in cash before placing any trades
and (B) there are no trading commissions. All dividends received
are kept as cash in your account, which is also used to pay any
dividends accrued. The broker pays interest of 0.5% on any cash
balances, charges interest of 2% on any margin loans, assesses a
fee of 0.25% on borrowed securities, and allows trading with a 50%
margin requirement, which you intend to maximize. All rates are
expressed as effective annual, all transactions take place in the
same calendar year, and you can assume (A) a generic 30-day month
and (B) no margin recalculation before May 31. What is the absolute
value of the margin equity surplus or deficit in your account on
May 31? That is, how much new equity at a minimum do you need to
add to the account on May 31 to preserve the 50% margin
requirement, or alternatively, how much excess equity do you have
in account on May 31 above the 50% margin requirement?
Question 4 options:
$3,673
$3,775
$3,877
$3,979
$4,081
per share. ABC declares a dividend of $0.33 per share on March 31.
Simultaneously, on March 1, you sell SHORT 10,247 shares of XYZ at
a price of $23.37 per share. XYZ declares a dividend of $0.20 per
share on April 30. On May 31, ABC is down 7% and XYZ is up 10% from
their respective March 1 values. Assume that (A) your account's
equity on March 1 is $300,000 all in cash before placing any trades
and (B) there are no trading commissions. All dividends received
are kept as cash in your account, which is also used to pay any
dividends accrued. The broker pays interest of 0.5% on any cash
balances, charges interest of 2% on any margin loans, assesses a
fee of 0.25% on borrowed securities, and allows trading with a 50%
margin requirement, which you intend to maximize. All rates are
expressed as effective annual, all transactions take place in the
same calendar year, and you can assume (A) a generic 30-day month
and (B) no margin recalculation before May 31. What is the absolute
value of the margin equity surplus or deficit in your account on
May 31? That is, how much new equity at a minimum do you need to
add to the account on May 31 to preserve the 50% margin
requirement, or alternatively, how much excess equity do you have
in account on May 31 above the 50% margin requirement?
Question 4 options:
$3,673
$3,775
$3,877
$3,979
$4,081