Question
Suppose you short 1,000 shares of MNT stock at $30 per share and give your broker $20,000 to establish your margin account. The maintenance margin
Suppose you short 1,000 shares of MNT stock at $30 per share and give your broker $20,000 to establish your margin account. The maintenance margin is 25%. (a). If you earn no interest on the funds in your margin account, what will be your rate of return if MNT is immediately (t-0) selling at $28? MNT pays no dividends at t-0. (b). A year has passed (t-1). If you earned 2% on the funds in your margin account ($20,000), what would be your rate of return if after one year (t-1), MNT is selling at $34? MNT pays no dividends at t=1. (c). Continue to assume that a year has passed (t-1) and you earned an interest on the funds in your margin account. What is the price of MNT that you will receive a margin call?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered 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