Question

Due to COVID-19, Zeina opened an account to short-sell 500 shares of Eastern Tobacco (EAST). The...

Due to COVID-19, Zeina opened an account to short-sell 500 shares of Eastern Tobacco (EAST). The initial margin requirement is 60%. A year later, the price of Eastern Tobacco (EAST) has fallen from EGP 18 to EGP16, and the stock has paid a dividend of EGP 0.25 per share. Zeina is paying to her broker commission per share 0.5 EGP.

a.What is the remaining margin (equity) in the Zeina’s account after the price decrease of Eastern Tobacco (EAST)?

b.What is the rate of return on the investment?

Homework Answers

Answer #1

Below is our analysis of the case

The share price = EG18

Total shares = 500

Total share price value = 9,000

Margin Requirement = 60% * 9,000 = 5,400

1)

The price has decreased from 18 to 16, hence the New margin is = 16*500*60% = 4,800

Previous Margin requirement = 5,400

Remaining margin = Old - new = 5,400 - 4,800 = 600

2)

After a year, shares fell to 16

total Profit per share = 18 - 16 = 2

Profit overall = 2*500 = 1000

Commission = 0.5 * 500 = 250

Total profit = 750

Net return = 750 / 5400 = 14%

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 opened an account to short-sell 100 shares of Internet Hopes. The initial margin requirement was...
You opened an account to short-sell 100 shares of Internet Hopes. The initial margin requirement was 50%. (The margin account pays no interest.) A year later, the price of Internet Hopes has fallen from $40 to $30, and the stock has paid a dividend of $2 per share. What is the remaining margin in the account?
New Economy Traders opened an account to short sell 2,500 shares of Internet Hopes plc. The...
New Economy Traders opened an account to short sell 2,500 shares of Internet Hopes plc. The initial margin requirement was 50%. (The margin account pays no interest.) A year later, the price of Internet Hopes plc. has risen from £70 to £80, and the stock has paid a dividend of £3.5 per share. i) What is the remaining margin in the account? ii) If the maintenance margin requirement is 30%, will New Economy receive a margin call? iii) What is...
Josh Next opened an account to short-sell 3,000 shares of Sun Spots Co.. The initial margin...
Josh Next opened an account to short-sell 3,000 shares of Sun Spots Co.. The initial margin requirement is 50 percent. (The margin account pays no interest). A year later, the price of Sun Spots has risen from $45 to $50, and the stock has paid a dividend of $3 per share. What is the remaining margin in the account (in dollars and percentage)? If the maintenance margin requirement is 25 percent, will Josh Next receive a margin call? What is...
Old Economy Traders opened an account to short-sell 1,000 shares of Internet Dreams at $35 per...
Old Economy Traders opened an account to short-sell 1,000 shares of Internet Dreams at $35 per share. The initial margin requirement was 50%. (The margin account pays no interest.) A year later, the price of Internet Dreams has risen from $35 to $41.50, and the stock has paid a dividend of $4.40 per share. a. What is the remaining margin in the account? Remaining margin            $ b-1. What is the margin on the short position? (Round your answer to 2...
Old Economy Traders opened an account to short-sell 1,000 shares of Internet Dreams at $45 per...
Old Economy Traders opened an account to short-sell 1,000 shares of Internet Dreams at $45 per share. The initial margin requirement was 50%. (The margin account pays no interest.) A year later, the price of Internet Dreams has risen from $45 to $49.50, and the stock has paid a dividend of $5.40 per share. a. What is the remaining margin in the account? Remaining margin            $ b-1. What is the margin on the short position? (Round your answer to 2...
Old Economy Traders opened an account to short-sell 1,000 shares of Internet Dreams at $60 per...
Old Economy Traders opened an account to short-sell 1,000 shares of Internet Dreams at $60 per share. The initial margin requirement was 50%. (The margin account pays no interest.) A year later, the price of Internet Dreams has risen from $60 to $69.50, and the stock has paid a dividend of $7.80 per share. a. What is the remaining margin in the account?   Remaining margin $    b-1. What is the margin on the short position? (Round your answer to 2...
Old Economy Traders opened an account to short-sell 1,000 shares of Internet Dreams at $95 per...
Old Economy Traders opened an account to short-sell 1,000 shares of Internet Dreams at $95 per share. The initial margin requirement was 50%. (The margin account pays no interest.) A year later, the price of Internet Dreams has risen from $95 to $101.00, and the stock has paid a dividend of $15.00 per share. a. What is the remaining margin in the account? Remaining margin            $ b-1. What is the margin on the short position? (Round your answer to 2...
Old Economy Traders opened an account to short-sell 1,000 shares of Internet Dreams at $115 per...
Old Economy Traders opened an account to short-sell 1,000 shares of Internet Dreams at $115 per share. The initial margin requirement was 50%. (The margin account pays no interest.) A year later, the price of Internet Dreams has risen from $115 to $124.20, and the stock has paid a dividend of $19.00 per share. a. What is the remaining margin in the account? Remaining margin            $ b-1. What is the margin on the short position? (Round your answer to 2...
Donald opened an account to short-sell 2,700 shares of XYZ at $75 per share. The initial...
Donald opened an account to short-sell 2,700 shares of XYZ at $75 per share. The initial margin requirement was 50%. (The margin account pays no interest.) A year later, the price of XYZ has risen from $75 to $85, and the stock has paid a dividend of $1.50 per share. a. What is the remaining margin in the account? (Round your answer to the nearest whole dollar.) b. If the maintenance margin requirement is 30%, will Donald receive a margin...
Old Economy Traders opened an account to short-sell 1,000 shares of Internet Dreams at $65 per...
Old Economy Traders opened an account to short-sell 1,000 shares of Internet Dreams at $65 per share. The initial margin requirement was 50%. (The margin account pays no interest.) A year later, the price of Internet Dreams has risen from $65 to $76.50, and the stock has paid a dividend of $9.80 per share. a. What is the remaining margin in the account? b-1. What is the margin on the short position? (Round your answer to 2 decimal places.) b-2....
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT