Consider a stock that is sold short. At time 0, the stock is sold for $300. A margin account is established with an initial margin = 30%. The stock has no dividends. The interest on the margin account is 4%. The stock is purchased at the end of the year for $320.

Compute the annual rate of return assuming no maintenance margin.

Assume a maintenance margin is required and is set at 25% with the measurement periods being the end of each quarter. What is the annual rate of return assuming the following stock prices:

T Stock Price

0 300

0.25 305

0.50 315

0.75 385

1.00 320