Tom started to feel more comfortable trading stocks and wanted to navigate more tradinstrategies. He started to hear about short selling. Tom still does not fully understand how it works but he knows it is a way to make money when you are bearish about a certain stock. Tom is not into social media and strongly believes that social media stocks are significantly overvalued. His

advisor tried to convince him not to let his personal preference determine his investment strategies, but Tom said, $$I tried it once with GRMT and it worked, I know it will work again!!$.$ So$,$ he decided to invest part of his money to short$-$sell the new social media company Eye City

$($EC$).$ Tom sold $40,000$ shares of EC short at a price of $$28$ on December $30$ of $2021($The broker has a $50\%$ margin requirement on short selling$).$ He also decided that The remaining amount of the money will be invested in the money market $$Municipal bonds$.$ He purchased bonds issued by the state of Texas that have a yield of $7\%.$

$9)$ How much will be invested in the Municipal bonds?

a$)$ $$800,000$

b$)$ $$1,120,000$

c$)$ $$880,000$

d$)$ $$560,000$

e$)$ $$780,000$

$$ Now it is May $1,2022,$ the price of Eye City stock dropped to $$24.$ Tom is super

excited! He said to his broker $$I told you; this is going to be a penny stock in no time, and I am going to be rich!!$$ His broker did not agree to that and advised him to cover his position and get out of it before the price bounces again. But he didn$$t listen.

$10)$ If the maintenance margin on short$-$selling transactions is $30\%,$ how far can the EC price

decline before triggering a margin call?

a$)$ Any Price declines trigger a margin call

b$)$ Price declines don$$t trigger a margin call

c$)$ The price must decline to $$22\mathrm{.}3$ to trigger a margin call

d$)$ The price must decline by $30\%$ to trigger a margin call

e$)$ The price must decline to be $$2$ to trigger a margin call

$11)$ How far could EC stock price rise before Tom receives a margin call?

a$)$ Price increases don$$t trigger a margin call.

b$)$ The price that would trigger a margin call is $ $46\mathrm{.}67.$

c$)$ The price that would trigger a margin call is $ $27\mathrm{.}7.$

d$)$ The price that would trigger a margin call is $ $32\mathrm{.}3.$

e$)$ Any increase in the price would trigger a margin call.

$$ Now, it is Dec $2022,$ The municipal bond is now redeemed. However, the last few

months have been like a nightmare for Tom. EC stock price has been consistently rising. The price hits $$48$ and Tom just received a margin call, so he decided to use the proceeds from his other investment in the money market to cover his position at the current price.

$12)$ How much money did he earn from his investment in Texas state bonds, assuming his income tax

rate is $30\%?$

a$)$ $$54,600$

b$)$ $$38,220$

c$)$ $$818,220$

d$)$ $$834,600$

e$)$ $$39,200$

$13)$ How much more money did he need to deposit in his account to cover his short$-$selling position and get out of this investment experience? $$assuming no fees or dividends needed to be paid$$

a$)$ $$1,920,000$

b$)$ $$240,000$

c$)$ $$1,360,000$

d$)$ $$1,680,00$

e$)$ $$260,000$

$14)$ How much money does Tom have now in total?

a$)$ $$100,000$

b$)$ $$220,000$

c$)$ $$780,500$

d$)$ $$140,000$

e$)$ $$594,600$