Money Brokerage House (MBH) provides brokerage services, including margin trading. For margin trading, the call money rate is 8% per annum and interests are compounded annually. Initial margin requirement is set at 50% with maintenance margin of 30%.

Terence and Maggie are customers of MBH. Terence has practice to reinvest all investment returns, while Maggie will spend the investment returns for her daily expenditures.

a) Terence purchases 1,000 shares of Alibaba on margin, currently selling at $215 per share.

i) Construct the balance sheet of his margin account immediately after the position is set up.

ii) Compute holding period percentage return if Terence closes the position at $228 four months later. (rounded your answers to 4 decimal places)

b) Maggie shorts $20,000 shares of TVMost at $5 per share.

i) Without considering interest cost of borrowing stock, how high the TVMosts price is when Maggie gets a margin call? (rounded your answers to 4 decimal places) How much cash should she deposit in order to maintain the percentage margin back to 45%?

ii) Compute holding period percentage return if Maggie closes the position at $4.8 two months later. (Ignoring the interest cost of borrowing stock)

c) Evaluate and explain the investment performance (on annualized basis) of Terence and Maggie.

d) It is more appropriate to adopt dollar-weighted average return for measuring investment performance in this case Do you agree? Explain.