1. Your broker requires an initial margin of 40% and a maintenance margin of 20%, both for short sales and for margin borrowing. Your initial capital in your brokerage account is CAD 500,000 and the interest rate for margin loans is 6%. The price of a share of RBC is CAD 50.00.

1. How many shares of RBC could you maximally buy?

2. Suppose you buy 2000 shares of RBC at the current price, at what future price would you start receiving a margin call?

3. Suppose you buy 2000 shares of RBC at the current price and, after a year, the price has fallen to CAD 48.00. What is your annual return?

4. How many shares of RBC could you maximally short?

5. If you short 1000 shares of RBC at the current price, at what future price would you receive a margin call?

Answer rating: 100% (QA)

Answer 1 You could maximally buy 10000 shares of RBC since the initial margin requirement is 40 1000... View the full answer