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(1-2) Old Economy Traders opened an account to short sell 1,000 shares at the price per share of $40 of Internet Dreams. The initial margin
(1-2) Old Economy Traders opened an account to short sell 1,000 shares at the price per share of $40 of Internet Dreams. The initial margin requirement was 50%. (The margin account pays 3% interest rate.) A year later, the price of Internet Dreams has risen from $40 to $35, and the stock has paid a dividend of $2 per share. 1. If the maintenance margin requirement is 25%, will Old Economy receive a margin call? 2. What is the rate of return on the investment? (3-4) (1-2) Old Economy Traders opened an account to short sell 1,000 shares at the price per share of $40 of Internet Dreams. The initial margin requirement was 50%. (The margin account pays 3% interest rate.) A year later, the price of Internet Dreams has risen from $40 to $35, and the stock has paid a dividend of $2 per share. 1. If the maintenance margin requirement is 25%, will Old Economy receive a margin call? 2. What is the rate of return on the investment? (3-4)
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