Gamble Question (+5 points if you’re right and -5 points if…
Gamble Question (+5 points if you’re right and -5 points if you’re wrong…risk and return!) ***You do not have to attempt this problem!*** You buy 500 shares of Micron (MU) at $50 per share and deposit an initial margin of 50%. The interest rate on your margin loan is 7%. Suppose that one year from today the price of MU suddenly drops to $36 per share. Your brokerage house requires a maintenance margin of 30%. Unfortunately, you are out of cash and have to start selling some of your shares to meet the margin call. How many shares will you have to sell to get your account into good standing (i.e., back to 30% maintenance margin)? (Hint: you are selling shares to pay off your loan and not adding additional shares.)