Investment Analysis Notes

Investment Analysis Package – Part 1 - Theories

Content: Chapter 2 Margin Requirements Chapter 24 Index Calculation Chapter 7 Risk & Return / Markowitz Chapter 16 Bonds Industry Analysis Stocks Options Solutions to selective chapters Post-problems solutions 2-10 11-13 14-21 22-26 27-32 34-36 37-41 46-110 111

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Loan Value and Margin Requirements

Canadian securities

Security Option eligible ($5.00+) Listed ($3.00+) Listed ($3.00-) Canadian Dealer’s Network Warrants

Loan Value 70% 50% 0% 0% 50%

Margin Requirement 30% 50% 100% 100% 50%

Loan Value and Margin Requirement

Security Mutual funds ($3.00+) Mutual funds ($3.00-) Gov. of Canada bonds Prov. & Municipal bonds Corporate bonds US T-bonds

Loan Value 50% 0% 96% 90% 85% 96%

Margin Requirement 50% 100% 4% 10% 15% 4%

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How does margin work?

How do you calculate the margin requirement on a purchase? # of shares x Price x Margin requirement

Example 1: We are buying 100 TD Waterhouse @ $23.00 100 x $23.00 x 30% = $690.00

This is the margin requirement to buy this stock.  Remember that TD Waterhouse is option eligible and trades above $5.00

Example 2: We want to buy 1000 shares of Cognicase @ $19.00. COG is not option eligible. 1000 x $19.00 x 50% = $9500

This is the margin requirement on this trade. You are borrowing the remaining $9500 from TD Waterhouse.

Example 3: You want to buy $25,000 face value of a Quebec Provincial Strip bond @ $95 25,000 x $95/100 x 10% = $2375

Again, this amount is your margin requirement. The $21,375 balance is borrowed from TD Waterhouse. Don’t forget to make sure that the annual yield on the bond you’re buying is at least the cost of borrowing. (7% in this example)

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Margin Account Rates

President account: Canadian debit:   $0 - $99,999 $100,000+ Prime + 0.75% = 7.00% Prime = 6.25%

US debit:    $0 – $24,999 $25,000 – $99,999 $100,000+ Prime + 1.00% = 9.25% Prime + 0.75% = 9.00% Prime + 0.50% = 8.75%...