What is the first step in calculating the capital charge for a period of 5 days or less?

• A. Calculate the weighted current market value of the shares
• B. Calculate the maximum loan value of the shares
• C. Calculate the original purchase price
• D. Calculate the difference between market value and purchase price

Answer: (C)

The first step in calculating the capital charge for a period of 5 days or less involves determining the original purchase price. This step is essential because the capital charge is based on the amount of equity invested in the shares. By knowing the original purchase price, you establish a baseline that will be used to evaluate the change in value of the shares over the specified period. This foundational figure serves as a reference point for further calculations, such as comparing it to the current market value to assess potential gains or losses.

Identifying the original purchase price is crucial since it influences subsequent calculations in the capital charge assessment process. It sets the context for understanding the investment’s performance in relation to current market conditions. Once this figure is established, you can proceed to analyze the other variables that contribute to the overall capital charge, such as current market value and potential profit or loss over the specified timeframe.