Answered step by step
Verified Expert Solution
Question
1 Approved Answer
0 Suppose you find the following information for stock ORG: The minimum margin requirement =30% Current stock price = $50 per share No dividend is
0 Suppose you find the following information for stock ORG: The minimum margin requirement =30% Current stock price = $50 per share No dividend is expected within a year The interest rate on a margin loan is 6% per annum No interest paid on accounts from short sales You have an assessment of the ORG price probability distribution next year as below: Bear Market Normal Market Bull Market Probability 0.2 0.5 0.3 ORG price 45 55 66 You bought 600 shares of the stock with $15,000 of your own funds. a) What would be your rate of return on this investment if you sell the stock for $62.50 one year later? b) What would be the stock price when a margin call occurs (assuming you do not pay any interest on the margin loan)? c) What are the expected return and standard deviation of the stock, respectively? d) What are the expected return and standard deviation of your investment
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started