hey pls verify process for me. 40% intial margin, 25% - maintenance margin. 6% to borrow remaining funds. bought 100 shares xyz for $50. = $5000 of which $2000 is investors money and $3000 borrowed at 6% = 180. a year later, shares increased to $60. profit of $1000 = 5000-6000 return on invested profit would be: = [1000 - 180 * 0.75] / 2000 = 43.25% return my question is, why multiply by 0.75 to cost of borrowed funds. something to do with maintence margin. thanks
Margin amount = 50*100*.6 = 3000 Margined Return: Numerator=60(100) - 50(100) - 3000*.06 = 820 Denominator: Amount spent = 50*100*.4 = 2000 Return: 41% . not sure where the .75 came from above. Where is this question from? CP
Could be 1-Tax
Yeah I think it has to do with maintenance margin What about calculating margin call price after one year in this case? Does it work like this? .25 = (20 -50 + P - (50-20)*0.06) / P P = 31.8 / .75 = 42.4 So for margin with interest, then the margin call price is increasing as time progresses?
thanks for replying, i would not have muplited the cost of borrowing by 0.75 either. question taking from a prep course material. just wanted to know if anybody knows