Question
Kenix Brokerage House (KBH) provides brokerage services, including margin trading. Initial margin requirement is set at 50% with maintenance margin of 30%. Margret plans to
Kenix Brokerage House (KBH) provides brokerage services, including margin trading. Initial margin requirement is set at 50% with maintenance margin of 30%. Margret plans to short 1,000 shares of Tasty Meat at $50 per share. a) Without considering interest cost of borrowing stock, how high the Tasty Meat price is when Margret gets a margin call? (rounded your answer to 4 decimal places) How much cash should she deposit in order to maintain the percentage margin back to 40%? (4 marks) b) Compute effective annual return if Margret closes the position at $46 five months later. (Ignoring the interest cost of borrowing stock) (6 marks) c) Compare the level of risk by using inverse ETFs and short sales to make profit in expected bear market. (5 marks)
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