Question
You have $25,000 of investment equity in your brokerage account. Your broker has a 50% initial margin requirement. Your broker has a 35% maintenance margin
You have $25,000 of investment equity in your brokerage account. Your broker has a 50% initial margin requirement. Your broker has a 35% maintenance margin requirement. Starbucks is currently trading at $100 per share. Your broker allows its clients to short sell Starbucks (i.e., it is shortable) Assume 1 week after you short sell Starbucks that the stock price increases $25. Assume your broker does not charge any fee or interest to be able to short the stock. Assume you think that Starbucks is going to decrease in value in the coming weeks and that you want to short sell as many shares as possible. Assume zero dividends will be paid by Starbucks in the coming weeks. (A) What is the maximum number of shares of Starbucks that you could short sell?
B. if you were to cover your short position 1 week after the short sale, how much money would you earn or lose per share?
C. At what price would you get a margin call?
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