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Pendekar purchased 300 shares of JEBAT Co's stock at RM55 per share using the prevailing minimum initial margin requirement of 50%
Pendekar purchased 300 shares of JEBAT Co's stock at RM55 per share
using the prevailing minimum initial margin requirement of 50%. She held the stock for exactly four months and sold it without any brokerage costs at the end of that period. During the four month holding period, the stock paid RM1.50 per share in cash dividends. JEBAT Co was charged 9% annual interest on the margin loan. The minimum maintenance margin was 25%.
i. Calculate the initial value of the transaction, the debit balance and the equity position on Pendekar transaction.
ii. At RM45 share price calculate the actual margin percentage, and indicate whether Pendekar's margin account would have excess equity, would be restricted or would be subject to a margin call.
iii. Calculate the dollar amount of dividends and interest paid on the margin loan during the four-month holding.
iv. At RM50 sale price at the end of the four month holding period to calculate Pendekar's rate of return on the JEBAT Co's stock transaction.
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