Alex and Eliza, a lovely couple who are very keen with the return from the portfolio they paced in few classes of assets. Both of them believes that the only way to make money is to follow aggressive investment strategy. In fact, both of them have built a substantial margin account over the years. With the pandemic Covid 19 cases are increasing in the third wave in Malaysia, Alex is bearish with the current market price. While Eliza is bullish on the global market and she decides to invest in US in the near future. Currently Alex holds RM50,000 worth of his stock and the stocks trade at RM250 per share. A year later, the stock price has risen by 20% and the stock has paid a dividend of RM1.50 per share. Eliza has bought X-Box stock form US at RM40 per share for 5 lots (equal to 5000 shares). A year later she wants to add another 30% from her current US portfolio. She wants to borrow 40% from her broker at an interest rate of 10%. She has to maintain her account 25% for all the time. Required: a) A year later, Alex has interest to short sell 50% of his portfolio and the initial margin requirement is 50%, what is his initial margin account and remaining margin account? (3 marks) (CLO2:PLO6:C3) b) At what price that Alex will receive a margin call if the maintenance margin is 30%? Why there is a margin call? (4 mark) (CLO2:PLO6:C4) c) What is the rate of return on his investment? (3 marks) (CLO2:PLO6:C4) d) A year later if the price goes up to RM60, what would be the rate of return for Eliza? (4 marks) (CLO2:PLO6:C4) e) What is the margin in Eliza account initially and what is her remaining margin account if the price unexpectedly falls to RM60? (3 marks) (CLO2:PLO6:C4) f) What is Eliza rate of return? (3 marks) (CLO2:PLO6:C4) g) At what price Eliza will receive a margin call? Why? (4 marks) (CLO2:PLO6:C4) h) Do you think Alex and Eliza achieved their objectives in their investment? Elaborate


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