Telecom shares are up. The current market price is $100 per share and you have your own $15,000 to invest. You borrow an additional $15,000 from your broker at an annual interest rate of 8% and invest $30,000 in stock.

A. What will be your rate of return if the price of Telekom stock increases by 5% next year? The stock is currently not paying dividends.

B. If the maintenance margin is 30%, how much would the Telecom share price have to drop before you could receive a margin call? Suppose the price drop happens immediately.

Answer rating: 100% (QA)

A To calculate the rate of return on the investment we need to first calculate the total cost of the investment including the interest paid on the bor... View the full answer