In May 2018, six states, Florida, Nevada, North Carolina, North Dakota, Tennessee and Texas, file lawsuits against one of the biggest pharmaceutical company, Pudue Pharma, for its aggressive and deceiving marketing of a highly addictive painkiller, OxyContin. Burdened by the lawsuits, Pudue Pharma is on the verge of bankruptcy.

Carol is an active stock trader, specializing on Pharmaceutical industry. She expects the states will move soon to sue another pharmaceutical giant, Johnson and Johnson, for its misleading OxyContin marketing as well. Johnson and Johnson is a public-traded company, so Carol expects its share price will drop significantly when the lawsuits hit the firm.

On May 18, 2018, she contacts her broker and short sells 15,000 shares of Johnson and Johnson (ticker: JNJ) at then price $120 per share. The initial margin of her account is 50%, and she borrows as much as the initial margin allows. The maintenance margin is set to be 30%. Assume JNJ doesnt pay dividends at all.

As expected by Carol, the states start to file lawsuits against Johnson and Johnson in June. However, the trials are delayed, and JNJs share price doesnt show a sign of declining. On September 18, 2018, JNJs share price jumps to $140 driven by its above-expectation earnings. Assume before this day, Carol is free of margin-call concerns.

Question 1: What is the highest price that JNJ can rise to without causing Carol margin call?

Question 2: What is Carols margin when price jumps to $140? What is Carols return on equity at this moment?

Question 3: To raise the margin level and reduce the risks of her portfolio, Carol wants to buy back 800 shares. If she buys them back at price $140 and the price remains at $140, what is the margin after the buy back?