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An investor with an initial equity of $15,000 sees a good investment opportunity to purchase stocks of Walmart (WMT) buying with 50% on margin from
An investor with an initial equity of $15,000 sees a good investment opportunity to purchase stocks of Walmart (WMT) buying with 50% on margin from his broker. If the stock is currently trading at $100:
- How many stocks he will be able to purchase?
- If the broker Maintenance Margin Required is 30%, at which stock price of WMT the investors would receive a margin call? Show formula and calculation.
- What would be the return on this investment 1 year later, if the WMT price increases to $112? And, if stock price is $92? Consider an annual borrowing interest rate of 4%. Show all calculations.
- What is the leverage factor (effect) of buying on margin for this investment for when WMT increases $112? Show all calculations.
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