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Question - You have a brokerage account with the following terms:

You have a margin trading account with 50% initial margin and 35% maintenance margin. The interest rate on your loans is 8% per year.

1. You deposit $15,000 of your own money in the account. You will use all of it to buy on margin a stock trading at $50 per share.

a) Calculate the price at which you will receive a margin call?

b) Calculate your ROI - if after 3 months the share pays a dividend of $0.35 per share and is trading at $56.50 per share.

2. You deposit $15,000 of your own money in the account. You will use all of it to short sell on margin a stock trading at $30 per share.

a) Calculate your ROI - if after 3 months the share pays a dividend of $0.75 per share and is trading at $35 per share.

b) Calculate the price at which you will receive a margin call?

Reference no: EM132945927

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