Question
Mr. Sam opened an account to short-sell 50,000 shares of MSFT at $60 per share. Assume that the margin account pays no interest, and that
Mr. Sam opened an account to short-sell 50,000 shares of MSFT at $60 per share. Assume that the margin account pays no interest, and that the initial margin requirement was 60%. 1. What is the initial margin invested by Mr. Sam? 2. If after one year, the price of MSFT has risen from $60 to $66, and the stock has paid a dividend of $1 per share. a) What is the remaining margin in the account in dollars and as a percentage? What is the rate of return on the investment? b) If the maintenance margin requirement is 30%. At what price Mr. Sam will receive a margin call? 3. If after one year, the price of MSFT has fall from $60 to $50, and the stock has paid a dividend of $3 per share. What is the rate of return on the investment?
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