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The amount of debt is 10,000 and there are 500 shares purchase. The shares were purchased at $40 per share. The maintenance margin is 30%.
The amount of debt is 10,000 and there are 500 shares purchase. The shares were purchased at $40 per share. The maintenance margin is 30%. Let's say the share price decrease to $30 per share after year 1.
1. The return on equity is -54%
2. A margin call will be issued
3. Leverage has made the ROE (Return on Equity) worse than a straight cash purpose
Which statement(s) are true?
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