Question
You are bullish on Facebook stock. The current market price is $250 per share, and you have $20,000 of your own to invest. You borrow
You are bullish on Facebook stock. The current market price is $250 per share, and you have $20,000 of your own to invest. You borrow an additional $5,000 from your broker at an interest rate of 8% per year and invest $25,000 in the stock. What will be your rate of return if the price of Facebook goes up by 10% during the next year? The stock currently pays no dividends. How far does the price of Facebook stock have to fall for you to get a margin call if the maintenance margin is 40%? Assume the price fall happens immediately but you hold the stock for a year.
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