On January 2010, Mr. Ronald Spahr won a prize of a $300,000. For the last few years, Ron has been educating himself about the stock market. Because of the financial crisis, Ron, among others, believes this is a great entry point for investors and that there are so many undervalued stocks and great investment opportunities.

It is now May 2010; Ron is still sitting on his money waiting to learn more about the stock market. Ron heard a lot of investment professionals talking about making money by investing in new stocks offered to the public at initial public offerings (IPOs). So, Ron is waiting for a good IPO to jump in the market.

Ron started to learn about an upcoming IPO of an automobile company that so many people believe will change the future of the industry in the US and globally, thats Tesla Motors (TSLA). Ron likes this new company so much and is ready to start his investment journey once the stock goes public on June 29^th of 2010.

• Ron was not able to purchase the stock at the IPO price of $17. However, he purchased the shares in the secondary market at a price of $25 per share on July 1^st, 2010. Rons account manager is also so positive about TSLA, so she advised Ron to use the maximum allowed margin to maximize his returns from this great investment opportunity. Rons broker initial margin requirement is 60% and charges interest rate of 5%.

1. How much money will Ron borrow from his broker in order to use the entire margin in this transaction?

1. $750,000
2. $300,000
3. $333,333.3
4. $200,000

2. How many shares did he purchase if he will use the entire allowed margin?

1. 13,330 shares
2. 20,000 shares
3. 30,000 shares
4. 12,000 shares

3) What is the minimum initial margin requirement as specified by the Federal Reserve system?

a) 70%

b) 50%

c) 60%

d) 40%

4) If Rons broker has a maintenance margin of 40%, how far could TSLA stock decline before

Ron receives a margin call?

a) $15.8

b) $16.67

c) $17.50

d) $26.25