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Suppose that you sell short 1,000 shares of Xtel, currently selling for $60 per share, and give your broker $45,000 to establish your margin
Suppose that you sell short 1,000 shares of Xtel, currently selling for $60 per share, and give your broker $45,000 to establish your margin account. Required: a. If you earn no interest on the funds in your margin account, what will be your rate of return after one year if Xtel stock is selling at: (i) $66; (ii) $60; (iii) $54? Assume that Xtel pays no dividends. b. If the maintenance margin is 25%, how high can Xtel's price rise before you get a margin call? c. Redo parts (a) and (b), but now assume that Xtel also has paid a year-end dividend of $2 per share. The prices in part (a) should be interpreted as ex-dividend, that is, prices after the dividend has been paid.
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