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1. Microsoft is currently selling at $19.04 per share. You buy 1000 shares by using $15,000 of your own money and borrowing the remainder of
1. Microsoft is currently selling at $19.04 per share. You buy 1000 shares by using $15,000 of your own money and borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 6%. The account has an initial margin of 50 percent and a maintenance margin of 25 percent. What is the percentage increase in the net worth of your brokerage account if the price of MSFT immediately changes to: (i) $25; (ii) S15? How low can the price of MSFT fall before you get a margin call (ignore interest rate charges)? If you get a margin call, the broker asks you to increase the margin to 50%. How much money would you need to send your broker to satisfy the margin call if the stock price drops below the level computed in b? What is the rate of return on your margined position if MSFT is selling after one year at: () $25; (ii) S15? (You can ignore the dividend payments by MSFT)
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