You open a brokerage account and purchase 100 shares of Telecom stock at $100 per share. You borrow $5,000 from your broker in order to help pay for this purchase, and provide the rest of the funding from your personal funds. Assume the stock pays no dividend, and the interest rate on margin is 8%.

A. What will be your rate of return if the price of Telecom goes up by year? (Be sure to consider the interest on margin.)

B. How far does the price of Telecom have to fall for you to get a margin call? Assume the maintenance margin is 40%. Assume further that the price fall occurs instantly.