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What are margin trades? How do margin trades magnify both the upside potential and downside risk of an investment position? On 13 November 1996, the

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What are margin trades? How do margin trades magnify both the upside potential and downside risk of an investment position? On 13 November 1996, the long-dated bond "GSBM12", which pays its coupons on 6 February and 6 August, was trading at 109.84. The coupon rate is 7%. On the same day, an investor sold short $1,000,000 face value of "GSBM12". He borrowed the bond from a broker and collateralised the loan at a "repo" rate of 3%. On 3 January 1997, the investor closed his short position by repurchasing $1,000,000 face value of the bond from another broker. That day, the bond was trading at 110.375. Calculate the investor's net profit or loss

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