In: Finance
Given the following information,
The margin requirement=50%.
The margin call ratio = 30%.
Stock price: $ 60
Interest rate on margin borrowing (call rate): 5%
Expected dividend: $2
Holding period: 1 year
Please estimate
a) the margin trading return if the stock price increases to $80
b) the margin trading return if the stock price decreases to $45
c) the price which triggers the margin call.
d) If the margin-call triggering price is $25, please estimate the margin requirement, given everything else equal.