Bayerische Motoren Werke AG (BMW), which now trades as BMW on the German (DAX) stock exchange, has been under your portfolio watch list for last year. You believe that the stock should be priced around the 100-120 range thereby creating some investment opportunities. The graph below shows the performance of the stock for the last 6 years. The barchart below represents the daily volume.

The stock is currently priced at 80 per share and you decide to buy 1500 of the stock using 25,000 as a loan from the brokerage firm. The rate on the margin loan is 10% p.a. and maintenance margin is currently set at 25%.

(a) Given the following possible forecasted prices, estimate the return on your investment, assuming the price immediately changes.

i. 65

ii. 95

iii. 100

(b) Estimate how low the price of BMW can fall before you a margin call from your brokerage firm. Show your workings clearly. You can assume you are still trading for the first day since your purchase.

(c) Evaluate the impact of changing the margin loan to 20% of the value of the stocks on the margin call price above. What can you conclude regarding the relationship between margin call price and loan value?

(d) Assess the impact on the investment return if BMW is selling after one year at the following prices:

i. 85

ii. 80

iii. 140

(e) If BMW is currently priced with an Ask price of 65.20 and a Bid price of 64.75, and you place a limit order to sell at 65, would the order be executed? Explain your answer.

(f) If BMW pays some dividends, would your return on investment necessarily increase? Explain your answer.

(g) Based on the above graph, how has BMW been impacted by Covid-19? Explain your answer.