What will be the percentage return on your investment

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Question - Coinbase Global is currently trading at $250 per share. You expect the stock price to rise and decide to take a margin position in the stock. Assume your broker requires an initial margin rate of 60% and a maintenance margin rate of 40%. The broker also charges an annual interest rate of 5% on margin loans.

a) You place $18,000 in a margin account with your broker and buy the maximum shares of Coinbase allowed by your broker at $250 per share. What will be the percentage return on your investment if the price of Coinbase falls to $225 over the next 12 months?

b) Suppose the stock drops significantly exactly one year from today. At what price would you receive a margin call on the position described in part (a), assuming the margin call occurs one year from today?

Reference no: EM132935860

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