Question 2 (14 marks) a. After detailed analysis, Louis decides to sell short 500 shares of CCB Ltd. when it is selling at its yearly high of $40 per share. Assume that CCB pays no dividends.

i. How much in cash or securities must Louis put into his brokerage account if the initial margin requirement is 60% of the value of the short position? (2 marks)

ii. How high can the price of the stock go before Louis gets a margin call if the maintenance margin is 35%? (4 marks)

b. Tom purchases 1,000 shares of ZAX stock on margin at $60 per share. He borrows $24,000 from the brokerage firm to help pay for the purchase. The interest rate is 2% per month.

i. How much is the margin in Toms account when he first purchases ZAX stock? (2 marks)

ii. What is the remaining margin in the account if ZAX share price falls to $46 per share after a month? Will he receive a margin call if the maintenance margin requirement is 40%? (4 marks)

iii. Determine the rate of return on his investment. (2 marks)