Question
You are bearish on XYZ and decide to sell short 2,500 shares at the current market price of $50 per share. a. How much in
You are bearish on XYZ and decide to sell short 2,500 shares at the current market price of $50 per share.
a. How much in cash or securities must you put into your brokerage account if the brokers initial margin requirement is 60% of the value of the short position?
b. If you earn no interest on the funds in your margin account, what will be your rate of return after one year if XYZ is selling at $45 per share? Assume that XYZ pays no dividends.
c. How high can the price of the stock go before you get a margin call if the maintenance margin is 35% of the value of the short position?
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