You are bullish on BCE stock. The current market price is $ 50 per share, and you have $ 5,000 of your own to invest. You borrow an additional $ 5,000 from your broker at an interest rate of 8 percent per year and invest $ 10,000 in the stock.
a. What will be your rate of return if the price of BCE stock goes up by 10 percent during the next year? (Ignore the expected dividend.)
b. How far does the price of BCE stock have to fall for you to get a margin call if the minimum margin is 30 percent?