At the beginning of the year Donald opens a margin account and purchases 500 shares of FIN Corp at $40. Donald borrows $5000 from his broker at an annual interest rate of 10% to fund the purchase.

a) What is the initial margin?

b) What would be the margin if the price of FIN Corp fell to $30 at the end of the year?

c) What is the annual return that Donald would make from his investment if the price of FIN Corp fell to $30 at the end of the year?

d) What is the annual return that Donald would make from his investment if the price of FIN Corp rose to $50 at the end of the year

e) Discuss the implications of margin trading for the risk of Donalds portfolio.

f) What is the stock price of FIN Corp that would lead to Donald receiving a margin call? Assume that the price decline happens immediately. A margin of 30% will lead to a margin call.