Question
Suppose the current stock price of XYZ company is $65 per share. You want to borrow 1,000 shares of the stocks from the broker for
Suppose the current stock price of XYZ company is $65 per share. You want to borrow 1,000 shares of the stocks from the broker for short sale. The initial margin is 60% and minimum margin is 30%.
Answer the following questions:
a. How much money do you need to provide from your own pocket at the beginning? (2 mark)
b. If stock price increases to $73 per share, what is the value of your liability will be? And what is the new margin? (4 marks)
c. If stock price decreases to $55 per share, what is the value of equity you own? (2 mark)
d. How high can the stock price rise before you receive a margin call? (2
SHOW ALL STEPS .
Step by Step Solution
3.43 Rating (153 Votes )
There are 3 Steps involved in it
Step: 1
a Calculate the Initial Investment In a short sale you borrow shares from a broker and sell them immediately in the market You need to provide collate...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 StartedRecommended Textbook for
Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
Students also viewed these Finance questions
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
Question
Answered: 1 week ago
View Answer in SolutionInn App