Assume the price fall happens immediately

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Reference no: EM131446919

You are bullish on Telecom stock. The current market price is $50 per share, and you have $5,000 of your own to invest. You borrow an additional $5,000 from your broker at an interest rate of 8% per year and invest $10,000 in the stock.

What will be your rate of return if the price of Telecom stock goes up by 10% during the next year? (Ignore the expected dividend.)

How far does the price of Telecom stock have to fall for you to get a margin call if the maintenance margin is 30%? Assume the price fall happens immediately.

Reference no: EM131446919

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