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You execute a margin purchase of 500 shares of a stock at S44 per share. The initial margin requirement is 6000 and the maintenance margin
You execute a margin purchase of 500 shares of a stock at S44 per share. The initial margin requirement is 6000 and the maintenance margin is 35%. On a per share basis, what is the minimum amount you must you put up and how much can you borrow from the brokerage house? a. b. If the price of the stock increases to $52 per share, what is the actual margin in your account? Assume you borrowed the maximum amount possible when taking the position initially c. How far can the stock price fall prior to your receiving a margin call? (Note, ignore any interest expense when calculating actual margins.) d. Suppose you hold your initial position for one year, at which time the stock is selling for S56 per of fifty cents. The interest rate on your loan was 7% annually. Calculate the percentage return on your investment. Then calculate the percentage return on your investment if you had made a cash purchase originally instead of a margin purchase. Explain the difference in the returns Repeat part d leaving everything as before except now assume an ending stock price of $36 per share. Explain why the two returns differ as they do e
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