Suppose you expect the price of BHM stock, which currently sells at at $40, to rise....

 

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Suppose you expect the price of BHM stock, which currently sells at at $40, to rise. You buy 300 shares by borrowing $4000 from your broker at the interest rate of 8% and funding the rest of the purchase with your own funds. a) Calculate the initial margin. b) If the price of BHM drops to $25 by the end of 1 year and the maintenance margin is set to 30%, will you receive a margin call? c) Find the rate of return on this investment. Suppose you short-sell 1000 shares of AOT stock at $30 per share. Assume further the initial margin requirement was 50%. a) What is the maximum amount you can lose? b) By the end of the year the stock pays dividends of $1 per share and the price of the stock surges to $35. The maintenance margin requirement is 30%. Will you receive a margin call from the broker? c) Find the rate of return on this investment. Suppose you expect the price of BHM stock, which currently sells at at $40, to rise. You buy 300 shares by borrowing $4000 from your broker at the interest rate of 8% and funding the rest of the purchase with your own funds. a) Calculate the initial margin. b) If the price of BHM drops to $25 by the end of 1 year and the maintenance margin is set to 30%, will you receive a margin call? c) Find the rate of return on this investment. Suppose you short-sell 1000 shares of AOT stock at $30 per share. Assume further the initial margin requirement was 50%. a) What is the maximum amount you can lose? b) By the end of the year the stock pays dividends of $1 per share and the price of the stock surges to $35. The maintenance margin requirement is 30%. Will you receive a margin call from the broker? c) Find the rate of return on this investment.

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