You are in a dinner talking with friends about investing in Netlfix. You are bullish in the stock while your friends are negative. You decide to do a margin purchase on the 1st of May 2019. The price is 380$ per stock and you want to buy 1,000 shares. You decide to purchase on margin as you are very optimistic on this trade. You call your broker and she gives you the following info on the account:
- Initial Margin Requirement: 50%
- Maintenance Margin 20%
- Annual Rate on margin purchases is 7.50%
- Commission was a flat fee of 40 $ per operation in the stock market
- At what stock price will you receive a margin call?
- August 31st you decide to close your position and sell the stock at 300$.The stock gave no dividend. What is the return of your investment? What would have been the total return if you had bought the stocks without borrowing?
- Your other friend decided to short at the same time as you did, if requirements for Initial Margin and Maintenance Margin were the same, what was the total return of his investment?
