Paula is considering buying stock on margin. She wants to buy $50 000 in stock; she will put 30 percent down and borrow the remaining $35 000 at 12 percent interest.

a. If Paula’s investment goes up 50 percent after one year and she pays off her loan, how much will she make in dollars? What percent rate of return does this represent?

b. If Paula’s investment instead drops by 20 percent, how much will she lose in dollars? In terms of a percentage loss, how much will she lose?