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You are optimistic about Telecom shares. The current market price is $40 per share and you have $5000 of your own to invest. You borrow
You are optimistic about Telecom shares. The current market price is $40 per share and you have $5000 of your own to invest. You borrow an additional $5000 from your broker and invest $10 000 in the shares. (i) How far does the price of Telecom shares have to fall for you to get a margin call if the maintenance margin is 30%? Assume the price fall happens immediately. (ii) What is the return on this margin investment if the price of Telecom shares drops to $35 per share? Suppose the interest rate is 10%.
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