Normal
I wrote up another example to show the problem I’m having. This is just an example and completely made up.E.g.If I wanted to take out the following Margin loan with the following securities:Security____LVR____Amount of shares purchased________LVBHP_______70%_________$5000_____________________$3500BPT_______60%_________$5000_____________________$3000FXJ_______70%__________$5000_____________________$3500 Total LV - $10000LVR – Loan Value RatioLV – Loan valueThat would leave me with a total lending value of $10000. Than say I chose to invest in the following portfolio:Company_____Amount of shares purchasedBHP______________$5000BPT______________$5000FXJ______________$5000ROC______________$10000 (not on accepted securities list)At time of purchase I have:Portfolio market value - $25000Loan Balance - $10000Loan Value - $10000 (5% Buffer - $500)Than say BHP drops from share price of $40 (my purchase price) to $20 on 1st March ’09 but all my other shares stay the same.On 1st March ‘09:Portfolio market value - $22500 (reduced in value)Loan Balance - $10000 (hasn’t changed)Loan Value - $8250 (5% Buffer - $500) (reduced in value)So because I have not payed off any of my loan yet and my loan value on 1st March ’09 with the buffer is $8750 (my LVR is really 66.66667% for my total portfolio). I would have to pay at least $1250, taking the buffer into account, to meet my loan balance and get out of the margin call.One thing I still don’t understand is what if ROC fell in price, which is not a secured share (not on approved list of shares), but just a share I bought with the loan money? Is it only securities that have an LVR that can affect the LV price? I must be missing how the portfolio value is linked to LV or something.Thanks
I wrote up another example to show the problem I’m having. This is just an example and completely made up.
E.g.
If I wanted to take out the following Margin loan with the following securities:
Security____LVR____Amount of shares purchased________LV
BHP_______70%_________$5000_____________________$3500
BPT_______60%_________$5000_____________________$3000
FXJ_______70%__________$5000_____________________$3500
Total LV - $10000
LVR – Loan Value Ratio
LV – Loan value
That would leave me with a total lending value of $10000. Than say I chose to invest in the following portfolio:
Company_____Amount of shares purchased
BHP______________$5000
BPT______________$5000
FXJ______________$5000
ROC______________$10000 (not on accepted securities list)
At time of purchase I have:
Portfolio market value - $25000
Loan Balance - $10000
Loan Value - $10000 (5% Buffer - $500)
Than say BHP drops from share price of $40 (my purchase price) to $20 on 1st March ’09 but all my other shares stay the same.
On 1st March ‘09:
Portfolio market value - $22500 (reduced in value)
Loan Balance - $10000 (hasn’t changed)
Loan Value - $8250 (5% Buffer - $500) (reduced in value)
So because I have not payed off any of my loan yet and my loan value on 1st March ’09 with the buffer is $8750 (my LVR is really 66.66667% for my total portfolio). I would have to pay at least $1250, taking the buffer into account, to meet my loan balance and get out of the margin call.
One thing I still don’t understand is what if ROC fell in price, which is not a secured share (not on approved list of shares), but just a share I bought with the loan money? Is it only securities that have an LVR that can affect the LV price? I must be missing how the portfolio value is linked to LV or something.
Thanks
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