Suppose the current price of a Firm is $19.50. You have $10,725 of your own money that you want to invest in the company. Consider two alternative investments:

a. You purchase on margin, where the IM (Initial margin) is 50% and the MM (Maintenance Margin) is 30%. The call rate (including the spread) is 9.25%. You take full advantage of the margin.

b. You purchase with a cash account.

Calculate the return for each (a and b), given the two following scenarios, and compare.

If the stock price at the end of 1 year is $22.45, what is your HPR with each investment?

If the stock price at the end of 1 year is $16.85, what is your HPR with each investment?