Question
You are concerned about the market volatility but have found stocks that are attractively priced. In addition to cash, your portfolio will have securities both
You are concerned about the market volatility but have found stocks that are attractively priced. In addition to cash, your portfolio will have securities both on the LONG and SHORT sides. You want to set up your LONG/SHORT portfolio with some constraints. You will set aside 11.31% of the equity as a cash reserve to cushion any adverse margin changes and to pay any associated fees. You will maximize your buying and selling power (i.e. what you can purchase and sell on margin) using the remaining equity and loans from the broker. Your account's beginning equity is $192,610 all in cash before you start trading. You will set up your 100% beta-neutral trade on full margin, and the margin requirements are 50% on both sides. Assume that the LONG side has a weighted average beta of 0.73, while the SHORT side has a weighted average beta of 1.00. How much cash will you have in your account immediately after you set up the portfolio? Consider cash from all sources regardless of the purpose.
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