$$ In January $2019,$ Mr$.$ Tom McInish won a prize of $ $900,000.$ Tom decided to sit on his money

waiting for a good investment chance. For the last few years, Tom has been educating himself about

the stock market. Tom heard a lot of investment professionals talking about making money by

investing in new stocks offered to the public at initial public offerings $($IPOs$).$ So$,$ Tom is

waiting for a good IPO to jump into the market. Tom started to learn about an upcoming IPO of an

automobile company that so many people

believe will change the future of the industry in the US and globally, that$$s Green Motors $($GRMT$).$

Tom likes this new company so much and is ready to start his investment journey once the stock goes

public on Dec $29,2019.$

$$ Tom was not able to purchase the stock at the IPO price of $$10.$ However, he purchased the shares

in the secondary market for $$15$ per share on January $1,2020.$ His account manager is also very

positive about GRMT$,$ so she advised him to use the maximum allowed margin to maximize his returns

from this great investment opportunity. Tom$$s broker's initial margin requirement is $60\%$ and she

charges an interest rate of $5\%.$

$1)$ Jan $2020,$ he invested all his money $($$$900,000)$ in this stock, how much money will Tom borrow

from his broker to use the entire margin in this transaction?

a$)$ $$900,000$

b$)$ $$300,000$

c$)$ $$600,000$

d$)$ $$1500,000$

e$)$ $$540,000$

$2)$ How many shares did he purchase if he used the entire allowed margin?

a$)90,000$ shares

b$)30,000$ shares

c$)15,000$ shares

d$)100,000$ shares

e$)60,000$ shares

$3)$ What is the minimum initial margin requirement as specified by the Federal Reserve system?

a$)70\%$

b$)50\%$

c$)60\%$

d$)40\%$

e$)45\%$

$4)$ one year later in Jan $2021,$ the price of GRMT declined to $$12.$ What is his new margin $\%$ now?

a$)50\%$

b$)45\%$

c$)40\%$

d$)47\mathrm{.}5\%$

e$)40\mathrm{.}5\%$

$5)$ Mr$.$Tom is concerned about receiving a margin call from his broker at this point.

If you know that his broker has a maintenance margin of $45\%,$ would you agree with him on his

concern?

a$)$ Yes, he should expect a margin call at this point because his new margin is now more than the

maintenance margin.

b$)$ Yes, he should expect a margin call at this point because his margin now is less than the

maintenance margin.

c$)$ No$,$ he should not expect a margin call at this point because his new margin is now more than the

maintenance margin.

d$)$ No$,$ he should not expect a margin call at this point because his margin now is less than the

maintenance margin.

$6)$ based on your calculations Tom would receive a margin call at this point of the year if the GRMT

price reaches?

a$)$ $$15\mathrm{.}93$

b$)$ $$10\mathrm{.}73$

c$)$ $$12\mathrm{.}00$

d$)$ $$12\mathrm{.}55$

e$)$ $$11\mathrm{.}46$

$7)$ Now, it is the end of the year $2021,$ Tom sold all his GRMT shares at $$20$ per share. What was his

rate of return on this investment?

a$)25\mathrm{.}00\%$

b$)70\mathrm{.}00\%$

c$)48\mathrm{.}89\%$

d$)68\mathrm{.}50\%$

e$)67\mathrm{.}16\%$

$8)$ How much money does Tom have now?

a$)$ $$2000,000$

b$)$ $$1,340,000$

c$)$ $$1,370,000$

d$)$ $$1,500,000$

e$)$ $$1,750,000$