Hoping for an explanation on one part of this problem:
Execute a margin call of 1000 shares of a stock at $40/share. The initial margin requirement is 50% and the maintenance margin requirement is 30%. I hold for one year, at which time the stock is selling for $50/share and the stock paid a dividend of $1. The interest rate on the loan was 6% annually. Calculate the percentage return on investment.
The formula I would use is:
R(t) = [P(t) - P(t-1) + D(t) - Interest(t)] / Initial Investment
And I know the answer is:
[50 - 40 + 1 - 1.2] / 20 = 49%
But I don't understand why the interest is 1.2 instead of .06. What is the reason behind this?