You are bearish on stock ABC, and its current market price is €100 per share. You ask your broker to sell short 100 shares. Your broker has a 50% margin requirement on short sales, so you add €5,000 on your account with the broker. Holding period is one year.
a. If the maintenance margin is 40%, at which price you will get a margin call?
b. If you cannot allow yourself a loss higher than €1,000, which price-contingent order will you place and at which price?
c. ABC has paid a year-end dividend of €0.50 per share. Calculate your rate of return if, after one year the ex-dividend price per share is €88.