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Suppose you purchase 1000 shares of Disney stock at $90 per share using margin. Your broker requires an initial cash investment of 60%.
A. If your broker requires a 40% maintenance margin, at what share price will you be subject to a margin call? Show all work.
B. If a margin call does occur, what alternatives do you have?
C. At the end of the year, suppose that the price per share of Disney is $86 and that Disney issued a dividend of $3 per share. Also, suppose that any interest charged on borrowed funds for one year is 10%. Calculate the return on your investment.
"Be sure to show all work"
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