The margin trading return

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Reference no: EM133290548

Case: Given the following information, please estimate a) the margin trading return if the stock price increases to $80; b) the margin trading return if the stock price increases to $45; c) the price which triggers the margin call.

The margin requirement is 70%.

The margin call is set at 20%.

Stock price: $ 50

Interest rate on margin borrowing (call rate): 6%

Expected dividend: $5

II) Following Q2I, if margin requirement is 40%, please recalculate a) the margin trading return if the stock price increases to $80; b) the margin trading return if the stock price increases to $45; c) the price which triggers the margin call.

III) Given the answers from Q2I and Q2II, investors argue that the lower the margin requirement, the lower the risk is. Do you agree?

Reference no: EM133290548

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