1

c) You purchased 250 shares of GM 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; ignore interest on margin. [20 marks] d) Suppose you are looking at various offers for borrowing from two different banks. The first bank offers 6.40% rate compounded semi-annually while the second offers you a lower rate of 12% but compounds interest weekly. Without considering any other fees at this time, which offer has better terms? [20 marks] e) An investment over three-year horizon is distributed as follows: 50% return over the first year, -30% return over the second year and then -11% in the third year. Calculate the arithmetic average and the geometric average over three years. What do you observe? [20 marks] c) You purchased 250 shares of GM 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; ignore interest on margin. [20 marks] d) Suppose you are looking at various offers for borrowing from two different banks. The first bank offers 6.40% rate compounded semi-annually while the second offers you a lower rate of 12% but compounds interest weekly. Without considering any other fees at this time, which offer has better terms? [20 marks] e) An investment over three-year horizon is distributed as follows: 50% return over the first year, -30% return over the second year and then -11% in the third year. Calculate the arithmetic average and the geometric average over three years. What do you observe? [20 marks]