Question
You are bullish on a Health Care stock. The current market price is $45 per share, and you have $10,000 of your own to invest.
You are bullish on a Health Care stock. The current market price is $45 per share, and you have $10,000 of your own to invest. You borrow an additional $8,000 from your broker at an interest rate of 6% per year and invest $18,000 in the stock. a. What will be your rate of return if the price of the Health Care stock goes up by 13% during the next year? The stock currently pays no dividends. b. How far does the price of the Health Care 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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