Consider the following information: Stock Price per share Rs 80 Margin requirement 50% Interest rate on margin accounts 9% Maintenance margin 30%…
2023 · Solved Question with Answer
Consider the following information:
| Stock Price per share | Rs 80 |
| Margin requirement | 50% |
| Interest rate on margin accounts | 9% |
| Maintenance margin | 30% |
| Ignoring transcation costs and taxes |
a. Assume that an investor takes a long position without using margin. Calculate the rate of return if the stock is sold for Rs 100 per share after one year.
b. Assume that an investor takes a long position using margin.
i. Calculate the stock price that will trigger margin call.
ii. Calculate the rate of return if the stock is sold for Rs 100 per share after one year.