Homework Questions? Ask a Tutor for Answers ASAP
You just bought 1000 shares of Kenyon Industries for $24 per share. You expect these shares to be worth $28 in 6 months. Kenyon does not pay a dividend. (You can also ignore transaction costs and interest expenses in your analysis.) a. (5 points) Determine the expected annual return associated with this position. b. (5 points) If you purchased shares on margin (initial margin = 50%), how would your answer to part a. change? c. (5 points) What share price would produce a margin call if the maintenance margin is 25%? d. (5 points) “In a margin trade, you only provide half of the funds at risk. The broker provides the remaining amount and your borrowing cost is known in advance. Therefore, margin trading is less risky than the alternative of paying the full amount for your stock.” Do you agree with this statement? Explain.