Course: MGMT3050 Investment & Analysis

Please answer all parts

Question 2 (12 marks) a) An investor borrows 100 shares of XYZ stock that is currently trading at $35 per share, and sells it. The initial margin requirement is 50%. i) What is the amount that will be credited to the investor's margin account in the form of short sales proceeds? ii) If the stock price subsequently declines to $30 per share, what would be the rate of return earned by the short-seller? (3 + 3 = 6 marks) b) You purchased $20,000 worth of stock at a time when the initial margin requirement was 50% and the maintenance margin requirement was 30%. If the stock price dropped by 40% in the coming days and you wished to rectify the situation by paying off a part of your margin loan, what amount of loan would you have needed to pay off in response to a margin call? (6 marks)