You are bullish on AT&T stock. The current market price is $25 per share, and you have $5,000 of your own to invest. You borrow an additional $5,000 from your broker at an interest rate of 8% per year and invest $10,000 in the stock.
a. What will be your rate of return if the price of AT&T stock goes up by 10% during the next year? (Ignore the expected dividend.)
b. How far does the price of AT&T stock have to fall for you to get a margin call if the maintenance margin is 30%?