Suppose you expect the stock price of Hobby Inc. to go up in the near future. The current

market price is $$60$ per share, and you have $$9,000$ 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 $7\%$ per year. $($Assuming no dividend is paid during

the holding period.$)$

a$.$ What will be your rate of return if the stock price of Hobby Inc. goes up by $14\%$ during the

next year? $(2$ marks$)$

b$.$ What will be your rate of return if the stock price of Hobby Inc. drops by $14\%$ during the

next year? $(2$ marks$)$

c$.$ How far does the stock price of Hobby Inc. have to fall for you to get a margin call if the

maintenance margin is $30$ percent? $(2$ marks