Question
Suppose the initial margin m0=50% and the maintenance margin m1=30%. The current stock price is $68 per share, and you sell short 3000 shares of
Suppose the initial margin m0=50% and the maintenance margin m1=30%. The current stock price is $68 per share, and you sell short 3000 shares of the stock now. If you want to keep your short position after the third margin call, how much cash do you need in advance at least? Hint compute the sum of the initial margin amount, 1st extra margin, 2nd extra margin, and 3rd extra margin all together without time discount. Type your answer without $ and round it to the nearest dollar. (Hint: We dont need new formulas for the second and the third margin call. When you provide the extra collateral at the first margin call, everything is reset. So, it is like you are having a new short sale position at the first margin call. You know the stock price at the first margin call and you already met the initial margin condition. Therefore, the real second margin call in this question is nothing but another first margin call after the real first margin call. So, you can use the same formula in the lecture note to find the stock price at the real second margin call and how much you have to provide as extra collateral. You can do the same thing for the third margin call. )
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