Question
You are buying 100 shares of Zoom Video Communications, Inc. at the market price of $450 per share. You have $35,000 of your own money
You are buying 100 shares of Zoom Video Communications, Inc. at the market price of $450 per share. You have $35,000 of your own money and borrows the rest of money for the purchase of the stock. The interest rate on the loan is 8%. Suppose your brokers initial margin requirement is 78% of the value of the position and maintenance margin is 40% of the value of the position. a. If the share price falls to $350 per share by the end of the year, what is the remaining margin in your account? (sample answer: 65.60%) b. What is the rate of return on your investment if the share price falls to $350 per share by the end of the year? (sample answer: 15.60% or -15.60%) c. Assume that a year has passed. How low can the stock price fall before you get a margin call? (sample answer: $375.50) d. Assume that you shorted 100 shares at the market price and a year has passed. How high can the stock price go before you get a margin call? (sample answer: $375.50)
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