1. Your margin account requires: 1) an initial margin of 50%. 2) a maintenance margin of 30%. A share in Miller Moore Equine Enterprises (WHOA) is selling for $50. You have $20000, and you want to buy as much WHOA as you can. After your purchase, shares of WHOA fall to $35. What is your new margin? Will you be subject to a margin call? If yes, how much money will you have to deposit to cover the margin call?
2. You have $30000 and your margin account requires a 60% initial margin and a maintenance of 40%. Your borrowing rate from your broker is 6%. Suppose Coca-Cola (KO) is selling for $50 per share. Assume no dividends, and that your borrowing rate is still 6%, what is your return if: In one year, KO is selling for $60 per share? At what price will you receive a margin call?