Question
Consider a stock that is sold short. At time 0, the stock is sold for $300. A margin account is established with an initial margin
Consider a stock that is sold short. At time 0, the stock is sold for $300. A margin account is established with an initial margin = 30%. The stock has no dividends. The interest on the margin account is 4%. The stock is purchased at the end of the year for $320.
Compute the annual rate of return assuming no maintenance margin.
Assume a maintenance margin is required and is set at 25% with the measurement periods being the end of each quarter. What is the annual rate of return assuming the following stock prices:
T Stock Price
0 300
0.25 305
0.50 315
0.75 385
1.00 320
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