Discuss the concept of pyramiding as it applies to this investment situation. Ravi buys the 10 000 shares of RS through his margin account. (Bear in mind that this is a $20 000 transaction.) a. What...

Discuss the concept of pyramiding as it applies to this investment situation.

Ravi buys the 10 000 shares of RS through his margin account. (Bear in mind that this is a $20 000

transaction.)

a. What will the loan ratio of the margin account be after the RS transaction if Ravi uses $10 000 from the margin loan and $10 000 of his own money to buy the shares?

b. What if he uses only $2500 equity and obtains a margin loan for the balance ($17 500)?

c. How do you explain the fact that the shares can be purchased using 87.5% debt from the margin loan when the prevailing maximum loan ratio is 50%?