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Question

Gwendolyn opens up a trading account at Charles Schwab and purchases 800 shares of Logitech Stock (LOGI) at SI5 per share. Suppose that the initial margin percentage is 66.67% and that your broker charges you a margin interest rate of 4%. (a) What is the minimum amount that Gwendolyn must deposit into her account in order to buy 800 shares of Logitech on margin? (b) Suppose that Gwendolyn deposited the amount in Part (a) and borrowed the balance to purchased the 800 shares of Logitech. What will be her rate of return if the price of Logitech stock goes up by 10% during the next year? You may ignore any expected dividend payments. [Make sure to take into account the margin interest rate in your calculations.] (c) How far would the price of Logitech have to fall before Gwendolyn receives a margin call if the maintenance margin is 30%?