Suppose that Intel is currently selling at $40 per share. You buy 250 shares by using $7,500 of your own money and borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 10% per annum.

1. What is the percentage increase in the net worth (or return on equity) of your brokerage account if the price of Intel immediately changes to (a) $46; (b) $34?

2. If the maintenance margin is 25%, how low can Intel stock price fall before you get a margin call?

3. How would your answer to (#2) change if you had financed the initial purchase with only $5,000 of your own money?

4. What is the rate of return on your margined position (assuming again that you invest $7,500 of your own money) if Intel is selling after one year at (a) $46; (b) $34?

5. What is the relationship between your percentage return and the percentage change in the price of Intel in (#4), assuming that Intel pays no dividends?