Anna and Clara are considering buying 500 shares of stock ABC each. ABC stock is currently selling for $100. Anna wants to buy the 500 ABC stocks using $30,000 of her own money and borrowing the remainder amount of the purchase from her broker. Annas broker will be charging her 8% on the margin loan. Clara wants to buy the 500 ABC stocks by paying the full amount of the purchase from her own money.

1. Assume that after one year stock ABC price is equal to $120 and stock ABC did not pay any

   dividend during the year. What will be Annas return? (2pts)

2. Assume that after one year stock ABC price is equal to $120 and stock ABC did not pay any

   dividend during the year. What will be Claras return? (2pts)

3. Assume that after one year stock ABC price is equal to $80 and stock ABC did not pay any dividend

   during the year. What will be Annas return? (2pts)

4. Assume that after one year stock ABC price is equal to $80 and stock ABC did not pay any dividend

   during the year. What will be Claras return? (2pts)

5. Compare Annas one year returns to Claras one year returns under the two scenarios (SABC = $120

   and SABC = $80). What can you conclude? (1pt)