Using the following information, calculate the rate of return on a margin transaction for an investor who purchases the stock and the stock price at which the investor who shorts the stock will receive a margin call. Market price per share: 25 Number of shares purchased: 1000 holding period: 1 year ending sahre price: 22 initial margin requriement: 50% Maintenance margin: 25% transaction and borrowing costs: 0 the company pays no dividends: what’s the margin transaction return:
-24%
Margin transaction return: 22(1000) - 25(1000) / 25*1000*.5 = -3000/25*1000*.5 =-24% Purchaser of Stock: Margin Call Price: = P ( 1-I) / (1-M) = 25 * (1-.5) / (1-.25) = 16.67 Seller of Stock: Margin Call Price = P ( 1+I) / (1+M) = 25 * 1.5/1.25 = 30
Whats the ans for this?
agree with above