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The daily market return follows a Normal distribution with mean 0.08/252 and standard deviation 0.15/252. The risk-free rate is 0.02. CAPM Betas of stock A and B are 2.1 and 0.5, respectively. All alphas are zero. Idiosyncratic volatilities of stock A and B are 0.12/?252 and 0.14/?252, respectively. The current price of stock A and B are $100/share and $200/share, respectively, and you sell short them. Initial margin rate is 50% and the maintenance margin is 30%. Compute probability that you receive the first margin call for either stock A or B within a year. Express the answer as a decimal after rounding it to the nearest hundredth. For example, if you have 0.126589, then the answer will be 0.13.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M93040417

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