Question

You are bearish on Telecom and decide to sell short 100 shares at the current market...

You are bearish on Telecom and decide to sell short 100 shares at the current market price of $45 per share.

a. How much in cash or securities must you put into your brokerage account if the broker’s initial margin requirement is 50% of the value of the short position?


b. How high can the price of the stock go before you get a margin call if the maintenance margin is 30% of the value of the short position? (Round your answer to 2 decimal places.)

Homework Answers

Answer #1

a. How much in cash or securities must you put into your brokerage account if the broker’s initial margin requirement is 50% of the value of the short position?

Amount we have to put = Share sale Value * Initial margin

Amount we have to put = 100 * 45 * 50%

Amount we have to put = $2250


b. How high can the price of the stock go before you get a margin call if the maintenance margin is 30% of the value of the short position? (Round your answer to 2 decimal places.)

Share sale value on short sell = Shares * (1 - maintenance margin) * margin call price

2250 + 4500 = 100 * (1 + 30%) * margin call price

Margin call Price = $51.92

Please comment if you face any difficulty and please don't forget to provide positive rating

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