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3) Suppose you buy 1000 shares of a stock for $100 per share, 50% on margin. Maintenance margin is 25%. a) If in a year
3) Suppose you buy 1000 shares of a stock for $100 per share, 50% on margin. Maintenance margin is 25%. a) If in a year the stock price falls to $60, will there be a margin call - and if so, how much extra cash will you have to put up? b) If you choose instead to sell the stock at $60 and repay the borrowed money (at 5% interest), what will be the rate of return on your investment? c) What would your return have been had you not bought on margin (i.e., not used any borrowed money)
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