Question
PSCM arranges a margin loan for its short sale of $981.7 million of Herbalife stock at a 50% initial margin. What is the dollar value
PSCM arranges a margin loan for its short sale of $981.7 million of Herbalife stock at a 50% initial margin. What is the dollar value of the initial margin that needs to be posted? What is the initial equity value in the margin account? Assume a maintenance margin of 30%.What would be the equity value if the stock rose by 5% (ie to $48.60 x 1.05 = $51.03)?Would there be a margin call at this stock price? How far can the stock price rise before there is a margin call? If Herbalife rose to $65, how much collateral would PSCM need to post to restore the initial margin?
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