# Question

You have $40,000 to invest in Sophie Shoes, a stock selling for $80 a share. The initial margin requirement is 60 percent. Ignoring taxes and commissions, show in detail the impact on your rate of return if the stock rises to $100 a share and if it declines to $40 a share assuming:

(a) You pay cash for the stock,

(b) You buy it using maximum leverage.

(a) You pay cash for the stock,

(b) You buy it using maximum leverage.

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