There are two stocks listed in the market. The information of the two stocks is given below:

1st Stock: ANZC

Price at year beginning ($): 100

Forecasted price at year-end ($): 104

Forecasted dividend in the year ($): 6

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2nd Stock: BHPD

Price at year beginning ($): 160

Forecasted price at year-end ($): 166

Forecasted dividend in the year ($): 6

Required:

Required:

a. Calculate the expected returns of ANZC and BHPD stock respectively?

b. David has $100,000 of funds to invest in the market. He wants to trade the stocks using margin purchase strategy, which requires initial margin ratio of 50% and interest charge of 8% on borrowed money. If David invests all his $100,000 as initial margin to buy one of the stocks to achieve the highest return, which stock should he buy? What is the maximum total $ return and rate of return achievable on his investment?

c. Christine has $100,000 of funds to invest in the market. She wants to trade the stocks using short sale strategy, which requires initial margin ratio of 50% and no other fee and interest charge on borrowed shares. If Christine invests all her $100,000 as initial margin to short sell one stock and buy the other stock (with the proceeds from short sale), which stock should she short sell and which should she buy? what is maximum total $ return and rate of return achievable on her investment?

d. Jane has no fund, but she finds arbitrage opportunity. How does Jane conduct arbitrage trading and what is his expected return?