Question
GPA PLUS Inc. stock sells today for $30/share. You buy 1000 shares with your own money. The stock doesnt pay a dividend. a. What are
GPA PLUS Inc. stock sells today for $30/share. You buy 1000 shares with your own money. The stock doesnt pay a dividend. a. What are the rates of return if the price immediately goes to $40, to $14? b. Instead of buying all the shares with your own money, you borrow $10000 to finance the purchase of 1000 shares at $30. What is your initial margin? c. What are your rates of return on your portfolio with borrowing if the price immediately goes to $40, to $14? d. What do these latter results suggest relative to your rates of return the portfolio without borrowing? e. With borrowing, how much must the share price fall from $30 before you must add cash to meet your maintenance margin of 30%?
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