John Smith purchased 500 shares of Horizon industries stock at the price of $60 per share using prevailing minimum initial margin requirement of 50%. John held the stock exactly six months. Assume there are no brokerage costs at the end of the period. During the six-month holding period, the stock paid $2 per share in cash dividends. He was charged 8% annual interest on the margin loan. The minimum maintenance margin was 25%.
- Calculate the initial value of the transaction, the debit balance, and the equity position of John's position.
- For each of the following share prices, calculate the actual margin percentage and indicate whether John's margin account would have excess equity, would be restricted, or would be subject to a margin call.
- $55
- $70
- $35
- Calculate the dollar amount of dividends received and interest paid on the margin loan during the six-month period.