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You are bullish on Yahoo! stock, which is currently trading for $20 per share. You have $5,000 of your own to invest but you borrow
You are bullish on Yahoo! stock, which is currently trading for $20 per share. You have $5,000 of your own to invest but you borrow another $10,000 from your broker at an interest rate of 7% per year and invest this in addition to your money in the stock. a. Ignoring dividends, what is your rate of return if the price of Yahoo! stock rises by 11% during the next year? b. How far must the price of Yahoo! Stock fall for you to get a margin call if the maintenance margin is 10%? 20%? 30%? Assume the price fall happens immediately.
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