1. You decide to purchase 100 shares of Exxon Mobil in a margin account that has an initial margin of 40%. Exxon pays an annual dividend of $1.50 a share and the stock is currently trading at $60. The cost of borrowing from your broker is 5%.

a) What is your percentage return if the stock increases to $75 in 1 year?

b) If the next day after you purchase the stock, bad news is released and drops the stock to $40. Will you receive a margin call if the maintenance margin is set at 20%? Explain and Quantify.

c) What is the equity in your account if in 1 year the stock increases to $65?