Margin is risky strategy-equivalent to double-edged sword

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At the beginning of the day Ms. Theresa invested $33,400 of her own wealth for buying shares of XYZ Inc, when the price of XYZ share was $24 per share. The initial margin is 60 percent. What is the maximum number (rounded to the two decimal points) of shares of XYZ she can buy? Suppose that, at the end of the day the price of XYZ share is $27 per share. What is the daily return in percentage? What will be your answer if the end of the day price of XYZ is $21 per share? If Ms. Theresa did not buy additional shares on margin, what would have been her daily returns when the next day price is $27 a share or $21 a share? Now, do you think that buying (taking long position) shares on margin is a risky strategy, equivalent to a double-edged sword? Why?

Reference no: EM131179621

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