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In: Finance

You are bullish on BL stock. It is currently trading at $50 per share. You have...

You are bullish on BL stock. It is currently trading at $50 per share. You have $6,000 and want to invest as much as possible into this stock. The initial margin requirement for the stock is 40% and the maintenance margin is 25%. The broker charges 5% on borrowed margin funds.

A) How many shares can you purchase, if you utilize your margin account fully?

B) Suppose in exactly one year, the stock is now trading at $70 and you get out of your position. What is your percentage return? (Don’t forget interest on margin loan!)

C) Now suppose in exactly one year the investor gets a margin call. What must be the stock’s price? (Don’t forget interest on margin loan!)

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 2 years ago
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