Question
An investor of $10,000 to invest Twitter Inc. currently traded at $100 with a 50% initial margin. Suppose Twitter does not pay a dividend. The
An investor of $10,000 to invest Twitter Inc. currently traded at $100 with a 50% initial margin. Suppose Twitter does not pay a dividend. The maintenance margin percentage required by the broker is 35%. Ignore the interest on the margin.
a) What is the total market value of the Twitter stock the investor purchased?
b) At what price of the Twitter stock will the investor receive a margin call from the broker?
c) What is the margin percentage if the Twitter stock drops by 30%?
d) What is the rate of return on the investor's investment if the Twitter stock drops by 30%?
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Investments
Authors: Zvi Bodie, Alex Kane, Alan J. Marcus
9th Edition
73530700, 978-0073530703
