Question
Suppose that you sell short 500 shares of Intel, currently selling for $70 per share, and give your broker $25,000 to establish your margin account.
Suppose that you sell short 500 shares of Intel, currently selling for $70 per share, and give your broker $25,000 to establish your margin account. |
a. | If you earn no interest on the funds in your margin account, what will be your rate of return after 1 year if Intel stock is selling at: (i) $74; (ii) $70; (iii) $66? Assume that Intel pays no dividends. |
(i) Rate of return | % |
(ii) Rate of return | % |
(iii) Rate of return | % |
b. | If the maintenance margin is 25%, how high can Intels price rise before you get a margin call?
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started