a) You are optimistic about Telecom shares. The current market price is $20 per share and you have $5000 of your own to invest. You borrow an additional $5000 from your broker and invest $10 000 in the shares.

i) How far does the price of Telecom shares have to fall for you to get a margin call if the maintenance margin is 30%? Assume the price fall happens immediately.

ii) What is the return on this margin investment if the price of Telecom shares drops to $15 per share? Suppose the interest rate is 10%.

b) Consider the following limit-order book of a specialist. The last trade in the stock took place at a price of $51.

Limit-buy Orders Limit-sell Orders Price ($) Shares Price ($) Shares 49.75 200 53.50 150 49.25 300 54.75 200 48.50 200 55.25 300 47.00 300 56.75 400 46.00 400 58.50 300