Question

12A)

You short-sell 100 shares of Tuckerton Trading Co., now selling for $44 per share. What is your maximum possible gain, ignoring transactions cost?

Multiple Choice

• $44

• $56

• unlimited

• $4,400

12B)You’ve borrowed $30,222 on margin to buy shares in Ixnay, which is now selling at $43.8 per share. You invest 1,380 shares. Your account starts at the initial margin requirement of 50%. The maintenance margin is 35%. Two days later, the stock price changes to $54 per share.

a. Will you receive a margin call?

• Yes

• No

• • b. At what price will you receive a margin call?

Answer 1

12 A) Maximum possible gain =Number of shares*Share price =100*44 =4400(Option d is correct option)

12B) a) (Share Price *Number of shares-Margin)/(Share Price*Number of shares)
=(54*1380-30222)/(54*1380) =59.44% (Since this is above maintenance margin you will not receive a margin call)
NO

b. (Share Price *Number of shares-Margin)/(Share Price*Number of shares)
=(P*1380-30222)/(P*1380) =35%
P*1380 =(35%*P*1380+30222)
P =30222/(1380-35%*1380) =33.69
Price where you will receive a margin call =33.69