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Assume that you buy 2 shares of Facebook Inc. at $220 per share, putting up a...

Assume that you buy 2 shares of Facebook Inc. at $220 per share, putting up a 50% margin.

i) How much equity funds do you need to provide to make this margin transaction? What is the borrowed amount in this transaction?

ii) If the stock price falls to $200 per share, what is your new margin position?

iii) What is your rate of return (return on equity) in (ii)? What would your rate of return in (ii) be if the transaction was without margin (100% equity)?

iv) Explain the main advantages and disadvantages of this margin transaction for you as investor.

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