Question: What are margin trades? How do margin trades magnify both the upside potential and downside risk of an investment position? On 13 November 1996, the

What are margin trades? How do margin trades magnify both the upside potential and downside risk of an investment position? On 13 November 1996, the long-dated bond "GSBM12", which pays its coupons on 6 February and 6 August, was trading at 109.84. The coupon rate is 9%. On the same day, an investor sold short $1,000,000 face value of "GSBM12". He borrowed the bond from a broker and collateralised the loan at a "repo" rate of 6%. On 3 January 1997, the investor closed his short position by repurchasing $1,000,000 face value of the bond from another broker. That day, the bond was trading at 110.375. Calculate the investor's net profit or loss

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