You opened a brokerage account a year ago. At that time, you bought $10,000 worth of shares of XYZ stock on margin - you used $5,000 of your own cash and borrowed $5,000 from the brokerage Orm.

1. (a) Right now, XYZ stock is up 6% from a year ago and you decide to get out of your XYZ holdings. Assume the brokerage Orm charges 4% interest on its margin loans, Compute your investmentis holding period return.

2. (b) Would you have had a higher holding period return if you had only borrowed $2,000 and used $8,000 of your own money in this investment? Explain.

3. (c) If the brokerage Orm charges a higher interest rate on its margin loans, would you reverse your answer to (b)? If no, how high does the interest rate need to be for you to reverse your answer to (b)? Explain.