Answer with complete Question:
Barbara buys 130 shares of DEM at $33.00 a share and 190 shares of GOP at $37.00 a share. She buys on margin and the broker charges interest of 7 percent on the loan.
a. If the margin requirement is 42 percent, what is the maximum amount she can borrow? Round your answer to the nearest cent.
$ 6,565.60
(Which is equal to 58(100 - 42)% of $11,320.)
b. If she buys the stocks using the borrowed money and holds the securities for a year, how much interest must she pay? Round your answer to the nearest cent.
$ 459.59 ($6,565.60 x 7%)
If after a year she sells DEM for $22.00 a share and GOP for $30.00 a share, how much did she lose on her investment? Use a minus sign to enter the amount as a negative value. Round your answer to the nearest cent.
$ 2,760
What is the percentage loss on the funds she invested if the interest payment is included in the calculation? Use a minus sign to enter the amount as a negative value. Round your answer to two decimal places.
28.44 %
Explanation:
a. Data and Calculations:
DEM, 130 shares at $33.00 a share = $4,290
GOP, 190 shares at $37.00 a share = 7,030
Total value of investments = $11,320
Margin requirement = 42% of $11.320 = $4,754.40
Barbara can borrow $6,565.60 ($11,320 - $4,754.40)
1. Interest on borrowed fund (margin):
$6,565.60 x 7% = $459.59
2. Loss from Sale of:
DEM, 130 shares at $22.00 a share = $1,430 ($11 x 130)
GOP, 190 shares at $30.00 a share = $1,330 ($7 x 190)
Total loss from investments = $2,760
3. Percentage Loss, with interest included:
Interest on borrowed fund = $6,565.60 x 7% = $459.59
Total loss from investments = $2,760.00
Total loss = $3,219.59
Total value of investments = $11,320
Percentage Loss = $3,219.59/$11,320 * 100 = 28.44%
