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You are pessimistic on CBA stock (current market price = $40 per share) and you order your broker to sell short 2,000 shares. The
You are pessimistic on CBA stock (current market price = $40 per share) and you order your broker to sell short 2,000 shares. The broker requires you to post an initial margin of 50% and a maintenance margin of 30% on short sales. CBA has paid a dividend of $1 per share before you covered the short position. 6. What is the initial margin deposit in Dollars? 7. What is the asset balance on your account immediately following the short sale? 8. How high can CBA's price rise before you get a margin call? 9. What would be your rate of return after one year if you repurchase the stock at $50 per share? Assume the repurchase price is an ex-dividend price. 10. What would be your rate of return after one year if you repurchase the stock at $30 per share? Assume the repurchase price is an ex-dividend price.
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6 The initial margin deposit is 50 of the value of the short sale Since you sold short 2000 shares at 40 per share the value of the short sale is Value of the short sale 2000 shares x 40 per share 800...Get Instant Access to Expert-Tailored Solutions
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