Question
You decide to buy Tulane Tech shares on margin that are currently priced at $50. The initial margin is 40%, the maintenance margin is 25%,
You decide to buy Tulane Tech shares on margin that are currently priced at $50. The initial margin is 40%, the maintenance margin is 25%, and the interest rate is 5% per annum. You decide to invest $10,000 of your own money using the margin option to its full extend.
1. What price would initiate a margin call?
2. If after a year the stock is at the price of the margin call, what would be your return?
3. If after a year the price of the stock has increased by 20%, what would be your return?
4. At what stock price would your margin drop to zero (0%)
5. What type of order (specify type and price) should you submit to your broker to cash out your position once it makes a 50% return (here, assume a 0% interest rate on the loan).
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