Question
Suppose you want to buy 400 shares of Amazon (AMZN) at $75 per share. Initial margin requirement is 65%. Call money rate plus the spread
Suppose you want to buy 400 shares of Amazon (AMZN) at $75 per share. Initial margin requirement is 65%. Call money rate plus the spread is 7%. You supplied cash just to meet the initial margin requirement and invested the rest on margin. A: How much did you supply and how much did you borrow? B. What is your HPR and EAR, respectively if the price is $60 6 months later? Compare this to the HPR and EAR, respectively, you would have earned if you had not invested on margin (ex: using cash account) C. Suppose your maintenance margin is 40%. At what price will you receive a margin call?
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