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Using his margin account, which has interest compounding monthly, and borrowing the maximum 50% allowed, Warren sells short $3,000 of a common stock that pays dividends of $20 at 6 months and $15 at 1

Using his margin account, which has interest compounding monthly, and borrowing the
maximum 50% allowed, Warren sells short $3,000 of a common stock that pays
dividends of $20 at 6 months and $15 at 18 months. The dividends are paid out of
Warren’s margin account. The initial margin requirement is 50% and the annual
effective interest rate on deposits into the margin account is i = 4%. At T=20 months,
Warren closes his short position by repurchasing the stock for $2,650. Find Warren’s
annual yield for the 20-month investment.

 

May 22 2021 View more View Less

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