Question
You have $100,000 to invest and wish to leverage your potential return using margin. Suppose the current stock price is $40/share, Initial Margin = 50%,
You have $100,000 to invest and wish to leverage your potential return using margin. Suppose the current stock price is $40/share, Initial Margin = 50%, Maintenance Margin is 30%. Annual Interest Rate is 5%. a) Given the data, how much money could you borrow?
b) What is the price to receive a margin call?
c) Evaluate your P/L, i.e., compute Holding Period Return and Annualized Return if in 6 months the price of stock is $50/share.
d) Evaluate your P/L, i.e., compute Holding Period Return and Annualized Return if in 3 months the price of stock is $40/share.
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