Question
Suppose that an investor buys 300 shares on margin at $40 per share. The initial margin is 50% and the maintenance margin is 30%. After
Suppose that an investor buys 300 shares on margin at $40 per share. The initial margin is 50% and the maintenance margin is 30%. After one year, the investor sells the shares for $38 and closes the long position. During the holding period, the shares paid a dividend of $1.30 per share. Interest on the margin loan is 7% annual. Show the calculations for the numbers you enter in the T accounts. a. Show the investors beginning T account. At what price would this investor receive a margin call? (calcs here) b. Show the investors T account at the share price of $38. What is the actual margin at this price? (calcs. here) c. Calculate the investors return for the holding period.
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