The current price of ABC stock is $40 a share. You have $1,000 of your own to invest. You borrow an additional $1,000 from your broker at an interest rate of 8% and invest $2,000 in the stock.

a) If the price of the ABC stock goes up by 10% over the next one year, what will be your rate of return?

b) If the maintenance margin is 40%, how low does the stock price have to fall before you receive a margin call from your broker? Ignore the interest on the margin loan (for part b) only)