Suppose you find the following information for stock ORG:

• The minimum margin requirement =30%

• Current stock price = $50 per share

• No dividend is expected within a year

• The interest rate on a margin loan is 6% per annum

• No interest paid on accounts from short sales

  You have an assessment of the ORG price probability distribution next year as below:

You bought 600 shares of the stock with $15,000 of your own funds.

1. a) What would be your rate of return on this investment if you sell the stock for $62.50 one year later?

2. b) What would be the stock price when a margin call occurs (assuming you do not pay any interest on the margin loan)?

3. c) What are the expected return and standard deviation of the stock, respectively?

4. d) What are the expected return and standard deviation of your investment?

Bear Market Normal Market Bull Market Probability 0.2 0.5 0.3 ORG price 45 55 66 Bear Market Normal Market Bull Market Probability 0.2 0.5 0.3 ORG price 45 55 66