Suppose you expect the stock price of ABC Inc. to go up in the near future. The current market price is $45 per share, and you have $6,000 of cash to invest. You buy the stocks using all the cash on hand and additionally borrow money from the broker. The initial margin is 40%. The interest rate on the borrowed money is 8% per year. (Assuming no dividend is paid during the holding period.)

a. What will be your rate of return if the stock price of ABC Inc. goes up by 12% during the next year? (2 marks) b. What will be your rate of return if the stock price of ABC Inc. drops by 12% during the next year? (2 marks) c. How far does the stock price of ABC Inc. have to fall for you to get a margin call if the maintenance margin is 30 percent?