You have decided to open a margin account with your broker and secure a margin loan. The specifics of the account are as follows:

Maintenance margin is 40 %

You are informed that if the value of your account falls below the maintenance margin, your account will be subject to a margin call

You feel that opening a margin account is a good investment strategy. You have decided to purchase 400 shares of the stock at its current price of $35 per share.

Model and analyze the following market transactions.

Scenario 1: you did not make use of margin trading, e.g., you purchase with 100% cash equity

Scenario2: initial margin requirement 65%

Scenario3: initial margin requirement 55%

For each of the above scenarios (for each scenario 1, scenario 2, scenario 3) calculate and analyze the following:

The value of the investment, debit balance, cash equity in the investment

Part A: If the price of the stock rises by $15 to $50 per share, calculate (for each scenario 1,2,3) the capital gain (or loss) earned, return on investor's equity, and the new margin percentage. Calculate all these for each scenario 1,2,3.

Part B: If the price of the stock falls by $15 to $20 per share, calculate (for each scenario 1,2,3) the capital gain (or loss) earned, return on investor's equity, and the new margin percentage. Calculate all these for each scenario1,2,3.

What are the implications for you, the investor?

For scenario 3 only, what is the lowest price per share at which the stock could sell before the investor would receive a margin call?