Suppose you want to buy 400 shares of Starbucks (SBUX) at $75 per share. Initial...
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Accounting
Suppose you want to buy 400 shares of Starbucks (SBUX) at $75 per share. Initial margin requirement is 65%. Call money rate plus the spread is 7%. You supplied cash just to meet the initial margin requirement and invested the rest on margin.
A.) What is your HPR and EAR, respectively if the price is $60 6 months later?
B.) What would the HPR and EAR have been if you had not invested on margin (i.e. using cash account)?
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