Problem 1: Life is Short You want to short $4,000 of ABC Technologies shares that distributes no dividends, currently priced

at $40 each. The initial margin is 50% and the maintenance margin is 30%.

1. Create the balance sheet of the position.

2. Following a drop in rankings relatively to XYZ technologies, the price of the stock decreases to $28. Estimate the return of your investment.

3. Calculate the price that would initiate a margin call.

4. Suppose that you have to make a tuition payment of $1,500 in the near future, which you cant miss. What kind of order should you submit (specify order type and price) to your broker, so you will have enough money to make this payment?

5. Suppose the price of the stock instantaneously increases to 60$. Will you get a margin call? If yes, how much would you be asked to contribute to keep your position open?