Suppose you buy OMR2000 worth of stock on margin. The initial margin is 60% andthe maintenance margin is 30%.a. How much have you borrowed? What is your equity?b. Suppose the value of the stock rises by 15% to OMR2300. What is the return onyour investment?c. Suppose the value of the stock falls by 15% to OMR1700. What is the return on yourinvestment?d. Does buying a stock on margin increase or decrease your risk of investment? Usethe results in parts b and c to answer the question.

Given: Current worth of stock = OMR 2000 Initial margin = 60% Maintenance margin = 30%

Suppose you buy OMR2000 w the maintenance margin is 3C a. How much have you borrow b. Suppose the value of the st your investment? c. Suppose the value of the st investment? d. Does buying a stock on ma the results in parts b and c to

Suppose you buy OMR2000 w the maintenance margin is 3C a. How much have you borrow b. Suppose the value of the st your investment? c. Suppose the value of the st investment? d. Does buying a stock on ma the results in parts b and c to

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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Question

Suppose you buy OMR2000 worth of stock on margin. The initial margin is 60% and
the maintenance margin is 30%.
a. How much have you borrowed? What is your equity?
b. Suppose the value of the stock rises by 15% to OMR2300. What is the return on
your investment?
c. Suppose the value of the stock falls by 15% to OMR1700. What is the return on your
investment?
d. Does buying a stock on margin increase or decrease your risk of investment? Use
the results in parts b and c to answer the question.

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