Question
You are bullish on ABC stock. The current market price is $250 per share, and you have $100,000 of your own to invest. You borrow
You are bullish on ABC stock. The current market price is $250 per share, and you have $100,000 of your own to invest. You borrow an additional $100,000 from your broker at an interest rate of 5% per year and invest $200,000 in the stock.
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Suppose the price of ABC stock falls immediately after your purchase. The maintenance margin is 35%. How low can the price of ABC stock fall before you receive a margin call?
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Suppose a year has passed. What is your rate of return if the price of ABC stock has gone up by 20%? Ignore the expected dividend.
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