You have $20,000 to invest in the shares of Iomega Incorporated.The stock is currently selling at a price of $40 per share.You estimate that the stock will be selling at a price of$60 in one year.Since Iomega is a growth stock, no cash dividends are expected over the next year.The rate on margin loans is currently 7%.

1.What would be the expected return on the investment assuming that you used the maximum allowable margin of 50%?

2.At what price would you get a margin call assuming the maintenance margin was 30%?

3.What would be the expected return on investment if you were to use an initial margin of 80% rather than the maximum allowable margin of 50%?

4.How far could the stock price fall with an initial margin of 80% assuming the maintenance margin remains at 30%?