Question
Suppose you want to buy 400 shares of Starbucks (SBUX) at $75 per share. Initial margin requirement is 65%. Call money rate plus the spread
Suppose you want to buy 400 shares of Starbucks (SBUX) 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 (i.e. using cash account)
C.) Suppose your maintenance margin is 40%. At what price will you receive a margin call?
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