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Stock IBM currently is selling at $50 per share. You buy 1000 shares using $30,000 of your own money, borrowing the remainder of the purchase
Stock IBM currently is selling at $50 per share. You buy 1000 shares using $30,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 10%. The maintenance margin is 30%.
a)If the stock price immediatley changes to $40, do you receive a margin call? Explain. (assume the price fall immediatley so no interest)
b) what is the rate of return on your margined position (assuming again that you invest $30,000 of your own money) if the stock is selling after one year at $55?
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