Suppose that XYZ currently is trading at $20 per share. You buy 1,000 shares using $15,000 of your own money, borrowing the remainder of the purchase cost from your broker. The rate on the margin loan is 8%.
a) What is your rate of return if the price of XYZ immediately changes to $22?
b) With the same information on stock XYZ and your initial margin above, assume a year has passed. How low can XYZ's price per share fall before you get a margin call if the maintenance margin is 25%?