2. For this question, recall that the return from a short position with a 50% collateral requirement in a margin account is 3R6 2R5, where Ro is the interest rate in the margin account and R, is the return on the short position. Assume that the interest rate in the margin account is the riskless rate. 1 (a) In December 1996, Fed chairperson Alan Greenspan in a televised speech used a phrase "irrational exuberance" to suggest that the US stock market was in a bubble. Suppose that you shorted the US stock market at the end of December 1996. Plot your wealth (i.e., cumulative returns) from December 1996 to June 2018, starting with $1 in December 1996. (That is, the first return is in January 1997.) Would you have ever made money on your short position? If so, which month would have been the best month to close out your short position? (1.5 point] (b) An early sign of the 2008 financial crisis actually happened in August 2007 when Northern Rock (a British bank) failed. Suppose that you shorted the US stock market at the end of August 2007. Plot your wealth from August 2007 to June 2018, starting with $1 in August 2007. (That is, the first return is in September 2007.) Would you have ever made money on your short position? If so, which month would have been the best month to close out your short position? (1.5 point] (c) Based on your answers from the previous parts, would you conclude that making money by shorting the US stock market is easy or difficult? Explain why. [1 points) 2. For this question, recall that the return from a short position with a 50% collateral requirement in a margin account is 3R6 2R5, where Ro is the interest rate in the margin account and R, is the return on the short position. Assume that the interest rate in the margin account is the riskless rate. 1 (a) In December 1996, Fed chairperson Alan Greenspan in a televised speech used a phrase "irrational exuberance" to suggest that the US stock market was in a bubble. Suppose that you shorted the US stock market at the end of December 1996. Plot your wealth (i.e., cumulative returns) from December 1996 to June 2018, starting with $1 in December 1996. (That is, the first return is in January 1997.) Would you have ever made money on your short position? If so, which month would have been the best month to close out your short position? (1.5 point] (b) An early sign of the 2008 financial crisis actually happened in August 2007 when Northern Rock (a British bank) failed. Suppose that you shorted the US stock market at the end of August 2007. Plot your wealth from August 2007 to June 2018, starting with $1 in August 2007. (That is, the first return is in September 2007.) Would you have ever made money on your short position? If so, which month would have been the best month to close out your short position? (1.5 point] (c) Based on your answers from the previous parts, would you conclude that making money by shorting the US stock market is easy or difficult? Explain why. [1 points)