1) You decide to open a margin account with your broker. You deposit $30,000 in your account. In addition, you borrow $30,000 from your broker and purchase 600 shares of XYZ corporation at $100 per share. As soon as you buy the stock, it drops to $88 per share.

d) What is the rate of return in your margin position if XYZ is selling after one year at (i) $110, (ii) $90? What

is the relation between your return and the percentage change in the price of XYZ?

1. Profit = (New Share Price - Purchase Price)* # of shares

Profit = (110-100)*600

Profit = 6,000

Rate of return in your margin position = Profit/Marign Invested

= 6,000/30,000

= 0.2 or 20%

1. Profit/(Loss) = (New Share Price - Purchase Price)* # of shares

Profit/(Loss) = (90-100)*600

Profit/(Loss) = -6,000

Rate of return in your margin position = Profit/(Loss) / Margin Invested

= -6,000 / 30,000

=-0.2 or -20%

e) Redo (d) assuming you are charged 7% interest per year in your margin account.