Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

I am not sure how to calculate the margin call Any easy way or specific formula can help me to calculate? Please teach me step

I am not sure how to calculate the margin call

Any easy way or specific formula can help me to calculate?

Please teach me step by step thx

1. Suppose an investor shorts 100 shares at $40 a share. The entire $4,000 is kept in an escrow account with the broker. In addition, the investor puts up a good faith margin deposit of 50 percent (= $2,000). Suppose maintenance margin is 30 percent. At what price P will the investor get margin call? (Ignore interest payments on deposits by broker for now)

2.If the investor cant come up with additional cash, he/she must cover part of the position. Suppose the broker requires the investor to bring the margin back to the IM level, how many shares will the investor have to buy at price $46?

3. Assume the margin requirement is only 10 percent. Suppose an investor buys 200 shares for $40. She puts up $0.10*200*40 = $800. Price increases to $48. Her equity increases by $200*8 = $1,600. How many more shares can she buy now

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

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

Volatility Trading

Authors: Euan Sinclair

2nd Edition

1118347137, 9781118347133

More Books

Students also viewed these Finance questions

Question

Why would unions target health care workers?

Answered: 1 week ago