Using the following assumptions, calculate the rate of return on a margin transaction for an investor who purchases the stock and the stock price at which the investor who shorts the stock will receive a margin call.
Market Price Per Share: $25
Number of Shares Purchased: 1000
Holding Period: 1 year
Ending Share Price: $22
Initial Margin Requirement: 50%
Maintenance margin: 25%
Transaction and borrowing costs: $0
The company pays no dividends
What of the following choices is closest to the correct answer The margin transaction return and margin call are:
Margin Transaction Return Margin Call
①A. -24.00% $16.67
②B. -12.00% $16.67
③C. -24.00% $30.00
A. ①B. ②C. ③