Rate of return and stock price falls below

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Reference no: EM132074351

You are bullish on Telecom stock. The current market price is $30 per share, and you have $3,000 of your own to invest. You borrow an additional $3,000 from your broker at an interest rate of 6.5% per year and invest $6,000 in the stock.

a. What will be your rate of return if the price of Telecom stock goes up by 8% during the next year? (Ignore the expected dividend.) (Round your answer to 2 decimal places.)

Rate of return %

b. How far does the price of Telecom stock have to fall for you to get a margin call if the maintenance margin is 30%? Assume the price fall happens immediately. (Round your answer to 2 decimal places.)

Stock price falls below $

Reference no: EM132074351

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