Your close friend decides that now, after hearing about your Finance class from Week 4, that its time to go LONG on Tesla Why? Because, how low can it go?? It closed Friday 11/25 at $182.86, and last check at after hours your broker assures you that you can pick up 200 shares at the after-hours spot of $182.95. Your broker is willing to open an account on margin for you given that you buy 100 shares with your own money. The rest will be on credit at 10%, compounded annually.

One year later, we (unfortunately for your friend) have come to learn that Elon Musk has all but abandoned Tesla. Ford and GM have joined forces and won a contract with the U.S. government to place 2,500 charge stations across the Midwest, South, East Coast, and West Coast interstate systems, with an additional 2,500 stations located throughout major cities across the U.S. These charging stations are not Tesla compatible. GMs electrification unit has come up with a small sedan that goes 400 miles per charge, can fully recharge within 5 minutes, and costs only $27,000 at most dealerships in North America. TSLA stock price per share at this time one year hence is $100.00.

1. What was the initial margin?

2. What is the margin on account at time = 1-year?

3. How much equity in Dollars does your friend have left at t = 1-year?

4. What was your friends one-year rate-of-return?

5. If the maintenance margin is 20%, how low can the stock price go before a margin call would happen at t = 2 years? [Your friend closed their account at t = 1-year, so this is just a theoretical question.]