Question

You sold short 400 shares of a stock for $60 per share. Your broker’s initial margin...

You sold short 400 shares of a stock for $60 per share. Your broker’s initial margin requirement is 60%. The broker’s maintenance margin requirement is 35%. You initially want to put up as little capital (money) as possible to support the short sale. A.) How much capital must you have in your account before you can make the short sale? B.) If the stock price goes to $70 per share, will you receive a margin call? Show your work to support your answer. C.) If one year later you covered your short position at $52 per share, what rate of return will you receive on your investment if the company’s stock that you shorted paid total dividends of $0.50 per share during the time you held the stock short? Assume there are no broker transaction charges.

Please show your work! Thanks!

Homework Answers

Answer #1
A) Capital to be had in the account = 400*60*60% = 14400
B) Balance in the margin account = 14400-400*(70-60) = 10400
Maintenance margin required = 400*70*35% = 9800
As the balance in the margin account is more than the
maintenance margin required, no margin call will be
received.
C) Gain on covering = 400*(60-52) = 3200
Dividends received = 400*0.5 = 200
Total gain 3400
Rate of return = 3400/14400 = 23.61%
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You short-sell 50 shares of XYZ stock at $100 per share. Your broker's initial margin requirement...
You short-sell 50 shares of XYZ stock at $100 per share. Your broker's initial margin requirement is 50% of the value of your short position. You put up cash to satisfy the initial margin requirement. a) What will be your rate of return (after 1 year) if XYZ stock sells at $110 a share? Assume that you do not earn any interest on your funds in the margin account and that the stock pays a dividend of $1.50 a share...
You sell 100 short shares of stock at $60 per share. Initial Margin Requirement (IMR%)= 50%....
You sell 100 short shares of stock at $60 per share. Initial Margin Requirement (IMR%)= 50%. Maintenance margin for short sale of stock with price > $16.75 is 30% of market (or position) value QUESTIONS: 1. What is the price for margin call?   2. What is the new market value of the position?(Note: we haven’t deposited any add’l cash yet)
Your brother purchased 400 shares of stock for $28.50 a share. The initial margin requirement is...
Your brother purchased 400 shares of stock for $28.50 a share. The initial margin requirement is 60% and the maintenance margin is 30%. What is the maximum percentage decrease that can occur in the stock price before you receive a margin call?
You purchased 800 shares of stock for $49.20 a share. The initial margin requirement is 65...
You purchased 800 shares of stock for $49.20 a share. The initial margin requirement is 65 percent and the maintenance margin is 35 percent. What is the lowest the stock price can go before you receive a margin call? What is your return if price per share goes up to $60 (assume no interest)? $9.27; 40% $26.49; 25.67% $17.22; 50% $26.49; 33.77%
You purchased 500 shares of stock XYZ for $80 per share. You borrowed $15,000 from your...
You purchased 500 shares of stock XYZ for $80 per share. You borrowed $15,000 from your broker to help pay for the purchase. A.) How much initial percent margin do you have in your account? B.) If your broker does not charge any interest payments on margin loans, how low can the price of the stock XYZ fall before you receive a margin call? Your broker has a maintenance margin requirement of 40% for stock XYZ. Please show your work!...
You sold short 1,000 shares of stock for $21,000. The initial margin requirement is 60%. Current...
You sold short 1,000 shares of stock for $21,000. The initial margin requirement is 60%. Current stock price is $27 per share. What is your current margin%? 1- 24.4% 2- 30% 3- 19.6% 4- 52.4%
You purchased 700 shares of stock at a price of $73 per share on 50% margin....
You purchased 700 shares of stock at a price of $73 per share on 50% margin. If the maintenance margin is 40%, what is the critical stock price? Show all work. Suppose that in the previous problem you shorted 700 shares instead of buying. The initial margin is 50 percent. If the maintenance margin is 40%, what is the critical stock price? Show all work.
You are bearish on Telecom stock and decide to sell short 400 shares at the current...
You are bearish on Telecom stock and decide to sell short 400 shares at the current market price of $30 per share. How much cash must you put into your brokerage account if the broker’s initial margin requirement is 30% of the value of the short position? How high can the price of the stock go before you get a margin call if the maintenance margin is 35% of the value of the short position?
On January 1 you sold short 100 shares of SN Corp. stock at $23 per share....
On January 1 you sold short 100 shares of SN Corp. stock at $23 per share. On March 1 the stock paid a dividend of $2.50 per share. On April 1 you covered the short sale by buying the stock at $18 per share. The broker commission for trading is $0.10 per share. What was your initial investment? What was your net return in dollars? What was the annualized return in percent?
You just bought 200 shares of a stock priced at $48 per share using 50% initial...
You just bought 200 shares of a stock priced at $48 per share using 50% initial margin. The broker charges 4% annual interest rate on the margin loan and requires a 30% maintenance margin.  One year later stock price dropped to 31 and you recieved margin call, to restore your margin to the initial margin level, how much would you need to deposit? Answer ___+/- ____ You sell short 100 shares of company A which are currently selling at $32 per...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT