1. Suppose you purchase 100 shares of CBA Inc. at $20 using a margin account as described above. You initially put in $1,000 to buy 50 shares and your broker puts in $1,000 to purchase 50 shares. Now suppose the price of CBA Inc. falls to $19. What is the value of your investment? What is the value of the equity in your account? Have you maintained your margin maintenance requirement? Explain.

1. Now suppose the value of CBA Inc. falls to $8 per share. What is the value of equity in your account now? Have you maintained your margin maintenance requirement? Explain.

1. Given the events described in b) are you likely to get the dreaded margin call? How much will your broker require you to deposit in the account to achieve the margin maintenance requirement? Make two separate calculations when answering this question. 1) Assume you see this as a short term problem and are simply adding cash to the account and are not reducing the margin and 2) Assume your payment reduces your margin loan.