Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The current price of Tesla stock (TSLA) is $900 per share. An investor believes that TSLA is overpriced and decides to sell short 100 shares
The current price of Tesla stock (TSLA) is $900 per share. An investor believes that TSLA is overpriced and decides to sell short 100 shares at the current market price. The initial margin requirement and maintenance margin requirement is 50% and 30%, respectively, of the value of the short position. For simplicity, assume that the margin account pays no interest.
1. Determine the initial balance of the investor's account - what is the value of assets, liabilities, and equity?
2. Without using any numbers, briefly explain whether the stock price should increase or decrease to bring a margin call to the investor's account.
3. The investor does have an insight Tesla stock price falls to $820 per share in one month. What is the investor's rate of return?
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