3. Suppose an investor initially pays $6000 toward the purchase of $10,000 worth of stock (100 shares at $100 per share), borrowing the remaining $4,000 from a broker.

A. Construct the initial balance sheet

B. What is the initial percentage margin?

C. Assuming the price declines to $70, construct the new balance sheet and find the new percentage margin

D. Assuming the maintenance margin is 30%, to what price should the stock drop before the investor receives a margin call?

E. Now assume the investor buys $20,000 worth of stock, borrowing $10,000 of the purchase price at an interest rate of 9% per year. The price per share is $100. Compare the returns of the investor with and without buying on margin if;

The stock rises by 30%

There is no change in stock price

The stock falls by 30%

What do you notice about buying on margin?