FIN307-INVESTMENTS September 17, 2019 Practice Problems for Buying on Margin and Short Selling You are bullish on Big Oil stock. The current market price is $50 per share, and you have $5,000 of your own money to invest. You borrow an additional $5,000 from you broker at an interest rate of 8% per year and invest $10,000 total in the stock. 1. invested capital if Big Oil stock goes up to $55 What will be your rate of return on per share at the end of one year? The stock pays no dividend. a. If the maintenance margin is 30%, how far does the price of the stock have to fall for b. you to get a margin call? 2. You are bearish on Big Oil stock and decide to short sell 100 shares at the current market price of $50 per share. If the initial margin requirement is 50 % , how much must you put into your brokerage account and what is the total balance? (Assume this is your only transaction.) a. At what price will you receive a margin call if the maintenance margin is 30 %2 b. c. If the price falls to $45 in six months, what is your rate of return