You believe GameStop stock is significantly undervalued at the current price of $120 per
share and have decided to take a margin position. Your broker charges an annual interest rate of 12%
on margin loans and requires initial and maintenance margin rates of 50% and 35%, respectively.
Suppose you place $7200 into your account and buy 100 shares at the current price of $120 per share.
What is the percentage return on your position if the price of GameStop drops to $90 over the next
year? (Note: If necessary, you can solve this problem ignoring interest for partial credit.)You believe GameStop stock is significantly undervalued at the current price of $120 per
share and have decided to take a margin position. Your broker charges an annual interest rate of 12%
on margin loans and requires initial and maintenance margin rates of 50% and 35%, respectively.
Suppose you place $7200 into your account and buy 100 shares at the current price of $120 per share.
What is the percentage return on your position if the price of GameStop drops to $90 over the next
year? (Note: If necessary, you can solve this problem ignoring interest for partial credit.)
