You are bullish on Telecom stock. The current market price is $48 per share, and you have $9,600 of your own to invest. You borrow an additional $9,600 from your broker at an interest rate of 3.0% per year and invest $19,200 in the stock.
a. What will be your rate of return if the price of Telecom stock goes up by 5% 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 $