Question
You sold short 500 shares of a stock for $75 per share. Your brokers initial margin requirement is 60% for this stock. The brokers maintenance
You sold short 500 shares of a stock for $75 per share. Your brokers initial margin requirement is 60% for this stock. The brokers maintenance margin requirement is 38%. You initially want to put up as little equity as possible to support the short sale. A.) If one year later you covered your short position at $62 per share, what percent rate of return will you receive on your investment if the company stock that you shorted paid total dividends of $0.70 per share during the time you held the stock short? Assume there are no broker transaction charges. B.) If the stock had instead rose against you to $85, will you receive a margin call? Show your work to support your answer.
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