Problem 2 You sell short 100 shares of Microsoft at $300 a share The initial margin is 50% The cost of borrowing money in the margin account in 5% Ignore cost of borrowing shares The stock pays a dividend of $3 a share per year The minimum maintenance requirement is 20%

5) In 2 years, the stock drops to $230 a share what is the annual percentage return on your investment?

6) What is the equity in your account after 2 years?

7) Calculate the price at which you will receive a margin call base your calculation on the information that is present when you make the purchase hence at time t=0