Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose that an investor sells 400 shares short at $50 per share. The initial margin is 50% and the maintenance margin is 30%. After 125

Suppose that an investor sells 400 shares short at $50 per share. The initial margin is 50% and the maintenance margin is 30%. After 125 days, the investor purchases the shares for $40 and closes the short position. During the holding period, the shares paid a dividend of $2.50 per share. Show the calculations for the numbers that you enter in the “T” accounts.

a). Show the investor’s beginning “T” account. (calcs here)

b). At what price would the investor receive a margin call?

c). Show the investor’s “T” account at the share price of $40. (calcs. here)

d). What is the actual margin at a share price of $40? 

e). Calculate the investor’s return for the 125 day holding period.

Step by Step Solution

3.27 Rating (165 Votes )

There are 3 Steps involved in it

Step: 1

Value of investment 40050 20000 Initial margin 50 of value 10000 Minimum margin 30 of investment 6... 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

Step: 3

blur-text-image

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

Value at Risk The New Benchmark for Managing Financial Risk

Authors: Philippe Jorion

3rd edition

0070700427, 71464956, 978-0071464956

More Books

Students also viewed these Banking questions