a)What is a margin call? To what level should the trader top up her/his account once receiving a margin call?

(7 marks)

b)An investor shorts 100 shares of a stock when the share price is $50 and closes out the position six months later when the share price is $43. The stock pays a dividend of $3 per share during the six months. Does the investor gain or lose? How much does the investor gain/lose?

(8 marks)

c)The spot price of an asset that pays no dividend is $30 and the risk-free rate for all maturities (with continuous compounding) is 10% per annum. What is the three-year forward price?