1. Assume you buy 800 shares of a stock selling for $15 a share, borrowing $4,000 at an interest rate of 6% to help finance the purchase. Your account has a maintenance margin of 40%.
A. At what price would you receive a margin call?
B. If, after one year, the price increased to $20 a share, what would be your rate of return?
2. Assume you buy a $1,000 face value bond with 7 years until maturity, a coupon rate of 5% paid semiannually, and a yield to maturity of 8%.
A) What is the price of this bond?
B) Assume that the yield to maturity falls to 7% after one year, and the investor decides to sell the bond. What would be the holding period return for the investor?