Question: You are bullish on Telecom stock. The current market price is $250 per share, and you have $21,000 of your own to invest. You borrow an additional $21,000 from your broker at an interest rate of 7% per year and invest $42,000 in the stock.
a. What will be your rate of return if the price of Telecom stock goes down by 8% during the next year? The stock currently pays no dividends. (Negative value should be indicated by a minus sign. Round your answer to the nearest whole number. Omit the "%" sign in your response.)
Rate of return ________%
b. How far does the price of Telecom stock have to fall for you to get a margin call if the maintenance margin is 30%? Assume the price fall happens immediately. (Round your answer to 2 decimal places. Omit the "tiny_mce_markerquot; sign in your response.)
Margin call will be made at price $________ or lower