Question 1 (13 marks) William is bearish on ABC Company and decides to sell short 10,000 shares at the current market price of $40 per share.

a. How much in cash or securities must you put into his brokerage account if the brokers initial margin requirement is 50% of the value of the short position? (2 marks)

b. If he earns no interest on the funds in his margin account, what will be his rate of return after one month if ABC is selling at $36 per share? Assume that ABC pays no dividends. (4 marks)

c. How high can the price of the stock go before you get a margin call if the maintenance margin is 30% of the value of the short position? (4 marks)

d. To limit his potential losses, what kind of price-contingent order should William enter? Explain. (3 marks)