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Suppose you invest $1000 of your own money and borrow the maximum amount available to you on margin and also invest that money. The initial
Suppose you invest $1000 of your own money and borrow the maximum amount available to you on margin and also invest that money. The initial maintenance requirement is 50%. 1. What is the total amount invested? 2. The asset you purchase immediately goes up 8%. What is the return on your invested money? 3. Instead of what happens in (2) above, the price of the asset rises 16% over the first year. You pay 5% interest on your margin account. What is the return on your investment? 4. If the stock price was originally $10/share and the maintenance margin is 30%, what is the lowest the stock price can go before there is a margin call
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