Question

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 decimal places.)**

Short margin
%

**b-2.** If the maintenance margin requirement is
30%, will Old Economy receive a margin call?

**c.** What is the rate of return on the investment?
**(Negative value should be indicated by a minus sign. Round
your answer to 2 decimal places.)**

Rate of return %

Answer #1

a). The initial margin was: $45 ×1,000 ×0.50 = $22,500.

As a result of the $4.50 increase in the stock price, Old Economy Traders loses: $4.50 ×1,000 shares =$4,500.

Moreover, Old Economy Traders must pay the dividend of $2 per share to the lender of the shares: $5.40×1,000 shares = $5,400.

The remaining margin in the investor’s account therefore decreases to: $22,500 – $4,500 – $5,400 = $12,600.

b-1). Margin on short position = Equity/Value of shares owed

= ($12,600/$49.50)/1,000 shares = .2545 = 25.45%

b-2). Because the percentage margin falls below the maintenance level of 30%, there will be a margin call.

c). The rate of return = (Ending equity – Initial equity)/Initial equity

= ($12,600 – $22,500)/$22,500= –0.44 = –44%

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 $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 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 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...

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....

Old Economy Traders opened an account to short-sell 1,000 shares
of Internet Dreams at $130 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 $130 to $144.00,
and the stock has paid a dividend of $22.00 per share.
a. What is the remaining margin in the
account?
(Round your answer to nearest dollar amount and put it
in the following format X,XXX. Do NOT...

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...

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...

You short sell 1000 shares of Internet Dreams. The initial
margin requirement is 50%. A year later, the price has risen up
from $40 to $50 and the stock has paid a dividend of
$3.
a) What is the remaining margin on the account?
b) If the maintenance margin requirement is 30%, will you
receive a margin call?
c) What is the rate of return on this investment?

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...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 30 minutes ago

asked 31 minutes ago

asked 41 minutes ago

asked 48 minutes ago

asked 56 minutes ago

asked 57 minutes ago

asked 57 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago