1. Assume that you purchased 300 shares of XYZ stock on margin for $50 per share. If the initial margin is 50% and the maintenance margin is 30%:

a-) What is the price that will trigger a margin call? *** (for parts b-d):Assume that the price dropped to $35 per share and your broker wants you to bring the margin back up to 50%.

b-) How much cash do you have to pay to meet the margin call?

c-) How much cash do you have to pay to meet the call if you are only interested in keeping 200 shares?

d-) How many shares of XYZ do you have to sell to meet the same margin call?

e-) Assume the margin call never happened. If you can sell the shares for $64 per share one year later and your broker is charging 6 % annual interest on the loan, what is the rate of return on this investment?

2. Suppose you sell short 400 shares of common stock at $30 per share. The initial margin is 60% and the maintenance margin is 40%.

a-) At which price will you get a margin call?

b-) Assume the price jumped to $35 per share and your broker wants you to bring the margin back up to the initial. How much more cash do you have to invest?

c-) What is your rate of return (assuming the margin call never happened) if you close the position at a price of $19 per share one year later, you earned 4% interest on your initial margin deposit over the year, and there was a dividend of $0.75 paid by the company at the end of year?