You have just learned about the mechanics of margin trading and want to take advantage of the potential benefits of financial leverage. You have decided to open a margin account with your broker and to secure a mnargin loan. The specifics of the account are as follows:

$$ Initial margin requirement is $70\%.$

$$ Maintenance margin is $30\%.$

$$ You are informed that if the value of your account falls below the maintenance

margin, your account will be subject to a imargin call.

You have been following the price movements of a stock over the past year and believe that it is currently undervalued and that the price will rise in the near future. You feel that opening margin arcourt is a good investment strategy.

You have decided to purchase three round lots $($i$.$e$.,300$ shar$$s$)$ of the stock at

its current price of K$25$ per share.

Required :

a$.$ Calculate the value of your investment in the stock if you did not make use of

margin trading.$$ In other words, how much must you invest if you find your purchase with$100\%$ cash equity?

b$.$ Calculate$$ the debit balai$($Loan amount$)$ and the cash equity in the$$ investment at the time of opening a$$ margin account, adhering to the$$ initial$$ margin requirement.

c$.$ If you use margin$$ and the$$ price of the stock rises by K$15$ to $40/$share$,$ Calculate the capital gain earned and the$$ return on investors equity.

d$.$ What is the current margin percentage based on item c$?$

e$.$ If you use margin and the$$ price of the stock falls by K$15$ to K$10$ per share, calculate the capital loss and the respective return on investors equity.

f$.$ What is the new margin percentage based on item e$,$ and what is the implication for you, the investor?