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Question 4 (14 Marks) Peter opened a brokerage account to sell short 1,200 shares of Carb Farm stock at the current market price of $160

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Question 4 (14 Marks) Peter opened a brokerage account to sell short 1,200 shares of Carb Farm stock at the current market price of $160 per share. The brokerage firm charges 12% per annum on the margin loan. a. Suppose that the initial margin required by the brokerage firm on his short position is 45%, find the amount of cash or securities that Peter must put in his margin account. Show all your calculations. b. How high can the price of the Carb Farm stock rise before Peter gets a margin call if the maintenance margin is 35% of the value of the short position? Show all your calculations. c. Twelve months later, the price of Carb Farm stock has increased from $160 to $200. Also, Carb Farm stock has paid a year-end dividend of \$2. per share. i. What is the remaining margin in Peter's margin account after one year? ii. Will Peter receive a margin call if the maintenance margin requirement remains same at 35% ? iii. What is the rate of return on Peter's investment after one year? 3 marks Show all your calculations. Question 4 (14 Marks) Peter opened a brokerage account to sell short 1,200 shares of Carb Farm stock at the current market price of $160 per share. The brokerage firm charges 12% per annum on the margin loan. a. Suppose that the initial margin required by the brokerage firm on his short position is 45%, find the amount of cash or securities that Peter must put in his margin account. Show all your calculations. b. How high can the price of the Carb Farm stock rise before Peter gets a margin call if the maintenance margin is 35% of the value of the short position? Show all your calculations. c. Twelve months later, the price of Carb Farm stock has increased from $160 to $200. Also, Carb Farm stock has paid a year-end dividend of \$2. per share. i. What is the remaining margin in Peter's margin account after one year? ii. Will Peter receive a margin call if the maintenance margin requirement remains same at 35% ? iii. What is the rate of return on Peter's investment after one year? 3 marks Show all your calculations

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