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The current market price of a stock is $40 per share, and you have $8,000 of your own to invest. You borrow an additional $8,000
The current market price of a stock is $40 per share, and you have $8,000 of your own to invest. You borrow an additional $8,000 from your broker at an interest rate of 4.0% per year and invest $16,000 in the stock.
a.) What will be your rate of return if the price of the stock goes up by 6.0% during the next year?
b.) How far does the price of the stock have to fall for you to get a margin call if the maintenance margin is 30%? Assume the price fall happens immediately.
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