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Q1. (8 points) Suppose you believe the stock price of XYZ Inc. will increase by 30% in expectation in the following year, with a standard
Q1. (8 points) Suppose you believe the stock price of XYZ Inc. will increase by 30% in expectation in the following year, with a standard deviation of 30%. The stock currently trades at $100. You pursue a strategy of buying 100 shares of XYZ on margin. The initial margin requirement is 50%. The annual interest on margin debt is 10% per year. (a) (4 points) What is the expected return and standard deviation of your strategy? (assume there is no margin call.) (b) (4 points) The maintenance margin is 30%. Six months after you establish your trade, you receive a margin call. What is the price of the stock when this happens
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