15 Rudolfo purchased 900 shares of stock for 607 a share and

15) Rudolfo purchased 900 shares of stock for $60.7 a share and sold them ten months later for $64.4 a share. The initial margin requirement on this stock is 73 percent and the maintenance margin is 41 percent. Ignoring dividends and costs, what is his percentage holding period return?

16) A 3.3 percent coupon bond is currently quoted at 96.2 and has a face value of $1,000. What is the amount of each semi-annual coupon payment if you own 9 of these bonds?

17) Last week, you sold 800 shares of Ace stock for $25,000. The sale was a short sale with an initial margin requirement of 63 percent. The maintenance margin is 40 percent. Some positive news concerning the company was released last night and the stock price jumped this morning to $42 a share. What is your current margin position in this stock, in percentages?

Solution

15. Rudolf\'s purchase price = 900 * 60.7 = $ 54630

Initial Margin = 73% * 54630 = $ 39879.9 - since Rudolf would have posted initial margin to buy the shares, we take this as the investment. At the end of 10 months, the sale proceeds are : 64.4*900 = $ 57960. That is a profit of $3330 on an investment of 39879.9 which is absolute return of (3330/39879.90) = 8.35% and annualised return of 10.02%

16. 3.3% bond will pay semi annually (1000 * 3.3%)/2 = 16.5. On 9 bonds the cumulative will be (16.5 * 9) = 148.5

17. At the time of sale, the value of the position is $25000 or (25000/800) = $31.25 per share. The initial margin will be 63% * 25000 = 15750. When the price moves to $42, the vaule of 800 shares will be (800 * 42) = $ 33600. This means that the margin has eroded by (33600-25000) = 8600 or would have become (15750-8600) = 7150 which is in percentage terms (7150/33600) = 21.28%