You are bullish on Telecom stock. The current market price is $90 per share, and you have $13,500 of your own to invest. You borrow an additional $13,500 from your broker at an interest rate of 7.8% per year and invest $27,000 in the stock.
a) What will be your rate of return if the price of Telecom stock goes up by 10% during the next year? (Ignore the expected dividend.)
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.