1. Suppose that you sell short 500 shares of XYZ, currently selling for $40 per share, and give your broker $15,000 to establish your margin account. If you earn no interest on the funds in your margin account and assume that XYC pays no dividends.

a.)So, what will be your rate of return after one year if XYZ stock is selling at:

i.) $44.00

ii.) $40.00

iii.) $36.00

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

c.)Try parts (a) and (b) again, but now assume that XYZ also has paid a year-end dividend of $1 per share. The prices in part (a) should be interpreted as ex-dividend, that is, prices after the dividend has been paid.

i.) $44.00

ii.) $40.00

iii.) $36.00