1. Suppose that you sell short 500 shares of Intel, currently selling for $40 per share, and you give your broker $15,000 to establish your margin account. Assume Intel pays no dividends.

a) If you earn no interest on the funds in your margin account, what will be your rate of return after one year if Intel stock is selling at i) $44 ii) $40 iii) $36?

b) If the maintenance margin is 25%, how high can Intel's price rise before you get a margin call?

2. You've borrowed $20,000 on margin to buy shares in Disney, which is now selling at $40 per share. Your account starts at the initial margin requirement of 50%. The maintenance margin is 35%. Two days later, the stock price falls to $35 per share.

a) Will you receive a margin call?

b) How low can the price of Disney shares fall before you receive a margin call?