Investments

An investor is trading on a margin account that has an initial margin requirement of 45% and maintenance margin requirement of 35% She bought 1,000 shares at $12 each The interest rate on the margin account is 7% and there is a flat $10 commission on every trade (buy or sell)

a) If the price moves to $14, calculate the new margin (ignore interest) (3 marks)

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b) If the price drops to $7, will the investor get a margin call? How much she needs to deposit (ignore interest)? (3 marks)

c) After 6-months she sold all those shares at $17 each Calculate her annualized levered return (include interest and commissions) (4 marks)

An investor holds a diversified portfolio of stocks, feels that the stock market will fall, and wants to temporarily earn a fixed interest rate rather than the return on stocks. This investor should use:a diff swapa volatility swapan amortizing swapan equity swap

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