a. Assume that you can buy U.S. Coal for $20 per share, either paying cash or buying on margin. The initial margin requirement is 50 percent, and the maintenance margin is 30 percent. U.S. Coal pays $0.25 per share in annual dividends. The margin interest cost is 6 percent. Using the spreadsheet format illustrated, calculate the $ gain or loss on both a cash basis and on a margin basis for 100 shares assuming possible ending prices for the stock as illustrated. The projected holding period is 6 months. Also calculate the percentage gain or loss on the initial investment for both a cash basis and a margin basis. Note that the holding period is expressed as part of a year in decimal form (e. g., 3 months = .25). Dividends are assumed to be paid quarterly. Thus, if the holding period is 3 months, and the annual dividend is $40, the dividend for the holding period is $10. Ignore tax considerations.

b. If you buy 500 shares instead of 100 shares, with all other parameters the same, would the percentage return on investment change?

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Ending $ Gain (L) St PrceCash 90 Ret. on InvMargin S Gain (L) % Ret. on Inv 20 100 Purchase Price # of Shares Purchased Annual Dividend Total Investment if purchased for cash Initial Margin Requirement (decimal) Mainten. Margin Requirement (decimal) Annual Margin Interest Rate Initial Investment if Bought on Margin Amount Borrowed if Bought on Margin Holding Period as % of a Year Holding PeriodAnn. Margin Int. Rate 10 15 20 25 30 35 40 45 50 0.3