Exercise #$3$ Short Sale $($Slides $36-44)$

You sold short $300$ shares of a stock at $$200$ per share. The initial margin is $50\%.$

$4$

$5$

$6$

$7$

$8$

No$.$ of share shorted

Initial Stock Price

Initial Margin Requirement

$300$

$$200$

$50\%$

a$)$ At what stock price would you receive a margin call if the maintenance margin is $40\%?$

$10($do not consider dividends in question a$)$

$11$

Maintenance Margin Requirement

$12$

Short sales proceeds

$13$

Initial Equity Margin $($$$)$

$14$

Price that triggers margin call

$15$

$16$ b$)$ Assume that the stock paid a $$0\mathrm{.}80$ dividend per share each quarter, what is the rate of return if you buy to cover the shares at $$220$ per share in six months?

$18$

Ending Stock Price

$19$ Dividend per share per quarter

$20$ No$.$ of Quarters

$21$

Ending Value of the Short Position

$22$ Dividends paid

$23$

Ending Equity Margin $($$$)$

$24$

Return on the Short Sale