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Company X stock is currently selling at $10 per share but they are positioning very well at the market and are continuously increasing their sales
Company X stock is currently selling at $10 per share but they are positioning very well at the market and are continuously increasing their sales and profits. You have $5000 and want to invest in these shares. But your broker advises you to buy on margin, as the stock price is about to increase. So, you borrow another $5000 from your broker at the interest rate of 5% and invest in 1000 shares of Company X stock. A) Calculate the initial margin and set the initial balance sheet. B) If the maintenance margin is 30%, how far can the stock price fall before the investor gets a margin call? C) What will be the rate of return if the price of stock fell to $7
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