You purchased 1000 shares of Dell stock on margin at $70 per share. Assume the initial...

You purchased 1000 shares of Dell stock on margin at $70 per share. Assume the initial margin is 50% and the maintenance margin is 40%. Assume the stock pays no dividends, and ignore interest on the margin loan.

a.What is the rate of return on his investment if the price rises to $85 per share?

b.What is the margin if Stock price falls to $60 per share, will the investor receive a margin call ?

c.How far can the stock price fall before a margin call?

Expert Solution

jeff jeffy answered 8 months ago

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