Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

4. Assume you consider Apple's stock overvalued and Google's stock undervalued. So, you decide to buy Google stock on margin and at the same time

image text in transcribed

4. Assume you consider Apple's stock overvalued and Google's stock undervalued. So, you decide to buy Google stock on margin and at the same time sell short Apple's stocks. Assume the initial margin requirement is 50% and the maintenance margin requirement is 30%. Assume Apple stock price now is $100 and Google stock now is $1000. You short sell 100 shares of Apple and buy 10 shares of Google. You have $10000 in your account. a. Do you need to add more money to satisfy the initial margin requirement? Show your calculation. b. Assume Apple stock price stays at $100, what is the price of Google stock at which you will receive a margin call? c. Assume Google stock price stays at $1000, what is the price of Apple stock at which you will receive a margin call? Assume the market goes against you: Apple stock price increases to $150 and Google stock price decreases to $750, e. d. What is your profit/loss? How much money you need to add to your account to satisfy the maintenance margin requirement? f. Sadly, you don't have enough money. So you decide to sell Google stocks and if selling all Google stocks cannot satisfy the margin requirement, you will add additional cash. How many shares of Google stocks you need to sell and how much cash you need to add? CamScanner

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Understanding Healthcare Financial Management

Authors: Louis C. Gapenski, George H. Pink

6th Edition

1567933629, 9781567933628

More Books

Students also viewed these Finance questions

Question

Distinguish between apperception and perception.

Answered: 1 week ago