Suppose that XTel currently is selling at $40 per share

Suppose that XTel currently is selling at $40 per share. You buy 500 shares using $15,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 8%

a) If you earn no interest on the funds in your margin account, what will be your rate of return after one year if XTel stock is selling at (i) $44; (ii) $40; (iii) $36? Assume that XTel has paid a year-end dividend of $1 per share.

b) If the maintenance margin is 25%, how high can XTel’s price rise before you get a margin call? Assume that XTel has paid a year-end dividend of $1 per share.