Question
You opened an account to short-sell 1000 shares of ABC at $80 per share. The initial percentage margin was 60% (20 points). a. Suppose the
You opened an account to short-sell 1000 shares of ABC at $80 per share. The initial percentage margin was 60% (20 points).
a. Suppose the broker has a maintenance margin of 40% on short sale. How much can the price of ABC stock rise before you get a margin call? (5 points)
b. Suppose that a year later, the price of ABC has risen from $80 to $100. What is the remaining percentage margin in the account? (5 points)
c. From (b), what is the rate of return on the investment? (5 points)
d. Since the maintenance margin requirement is 40%. You will get a margin call from the broker. At least how much money do you need to add into your account to meet the maintenance margin requirement without clearing your short selling position? (5 points)
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