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4. You are bullish on ABB stock. The current market price is $300 per share, and you have $60,000 of your own to invest. You
4. You are bullish on ABB stock. The current market price is $300 per share, and you have $60,000 of your own to invest. You borrow an additional $60,000 from your broker at an interest rate of 5% per year and invest $120,000 in the stock a. Suppose the price of ABB stock falls immediately after your purchase. The maintenance margin is 40%. How low can the price of ABB stock fall before you receive a margin call? b. Suppose a year has passed. What is your rate of return if the price of ABB stock has gone up by 15%? Ignore any expected dividend. (10 marks)
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