3. You are bullish on ITC stock. The current market price is $100 per share, and you have $400,000 of your own to invest. You borrow an additional $800,000 from your broker at an interest rate of 3% per week and invest $1,200,000 in the stock. ITC pays no dividends. a. Suppose the price of ITC stock falls immediately after your purchase. The maintenance margin is 30%. How low can the price of ITC stock fall before you receive a margin call? b. After 2 weeks, calculate your rate of return if the price of ITC stock has gone up by 20%?
3. You are bullish on ITC stock. The current market price is $100 per share, and you have $400,000 of your own to invest. You borrow an additional $800,000 from your broker at an interest rate of 3% per week and invest $1,200,000 in the stock. ITC pays no dividends. a. Suppose the price of ITC stock falls immediately after your purchase. The maintenance margin is 30%. How low can the price of ITC stock fall before you receive a margin call? b. After 2 weeks, calculate your rate of return if the price of ITC stock has gone up by 20%?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:3. You are bullish on ITC stock. The current market price is $100 per share, and you
have $400,000 of your own to invest. You borrow an additional $800,000 from
your broker at an interest rate of 3% per week and invest $1,200,000 in the stock.
ITC pays no dividends.
a. Suppose the price of ITC stock falls immediately after your purchase. The
maintenance margin is 30%. How low can the price of ITC stock fall before you
receive a margin call?
b. After 2 weeks, calculate your rate of return if the price of ITC stock has gone up by
20%?
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