Suppose that Tesla Inc stock (TSLA) currently is selling at $799.5 per share. You have...
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Suppose that Tesla Inc stock (TSLA) currently is selling at $799.5 per share. You have $1,380,000 cash in your account. You are bullish on the stock and decided to take a position using all your money. Your financial advisor at TD Bank provided you with two options to invest:
Option one: Open a TFSA account, where you can invest only all your cash to buy the shares.
Option two: Open a margin account, where you can invest with all your cash and also borrow additional amount from your broker to buy the shares. The initial margin requirement is 50%, and the minimum margin requirement is 30%. The interest rate charged on the margin loan will be 9% per year.
With both options, the commission is 50 cents per share for each transaction.
Calculate and answer:
i) With option one, how many shares maximum you can buy with the cash you have in the account? (2 marks)
ii) With option two, how much maximum you can borrow? How many shares maximum you can buy in the margin account?
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