I. You purchased 100 shares of ABC common stock on margin at $70 per share. Assume the initial margin is 50% and the maintenance margin is 30%. Below what stock price level would you get a margin call? Assume the stock pays no dividend and ignore interest on margin. ii. Now suppose that you maintain the margin position for half of a year. The broker charges 3% per year interest on margin loans and the stock pays $l.2O/share in dividend. Discuss and show numerically how this would affect your account.
iii. Bearing in mind the margin interest and dividend in ii. what would be your rate of return if you sell the stock at $65 per share after half a year?