Question

Use the following information to answer Questions 32-35 below. You sold short 1.000 shares of Loser Ca p rice of 565 per share. Many man your view of the company, Shares of Loser Co are the largest short positio 30% per share. Many market participants agree with are the largest short position on the S&P/TSX Index. 32. Your maximum possible loss on your trade is: A. Zero BS6.500 C. $65.000 D. $130,000 E. Unlimited 33. With respect to your position in Loser ce which of the following orders is most useful if you wish immediate execution of the trade? A. Fill or kill order B. Limit order C. Stop-loss order D. Stop-buy order E. Day order 34. Loser Co. surprises the market by developing a product that is a massive hit, with strong global demand. The price of the stock rises sharply. Which of the following factors most likely contributed to the increased stock price? Market participants now expect the company to have higher revenues Massive selling due to a "short squeeze" Short-sellers are increasing their positions in the stock III. A. I only B. II only C. I and II only D. I and III only E. I, II, and III 35. The initial margin on your short sale of Loser Co. is 50%. At what stock price would you receive a margin call if the maintenance margin is 30%? A. $69.64 B. $75.00 C. $78.46 D. $86.54 E. None of the above

Need help on these 4 multiple choice questions please!

Answer 1

32]

The shares are short sold. The position will be in profit if the share price increases. As there is no limit to how much the price could potentially increase, the maximum loss is unlimited.

33]

A - fill or kill order. This is most useful because in a fill or kill order, the order must be executed completely within a very short time, or it will not be executed at all. Partial fulfillment of order is not possible. Hence, this is the most useful order if you wish immediate execution.

B is incorrect - A limit order ensures certainty of price, but not certainty of execution

C is incorrect - This is used when one wishes the order to be executed if the share price falls below a specified level

D is incorrect - This is used when one wishes the order to be executed if the share price rises above a specified level

E is incorrect - Day order ensures certainty of price, but not certainty of execution

34]

A - I only. Market participants are expecting higher revenues due to a successful product. This was unexpected by the market. Hence, the share price has increased

II is incorrect - In a short squeeze, massive buying leads to a price increase, not massive selling

III is incorrect - As the share price has increased unexpectedly, short sellers will be decreasing their positions in the stock to limit their losses.

35]

Initial margin amount = short sold price * number of shares * initial margin %

Initial margin amount = $65 * 1000 * 50% = $32,500

Maintenance margin amount = short sold price * number of shares * maintenance margin %

Maintenance margin amount = $65 * 1000 * 30% = $19,500

Decrease in margin amount to trigger margin call = Initial margin amount - Maintenance margin amount

Decrease in margin amount to trigger margin call = $32,500 - $19,500 = $13,000

Increase in share price to trigger margin call = Decrease in margin amount to trigger margin call / number of shares

Increase in share price to trigger margin call = $13,000 / 1000 = $13

Share price at which margin call is triggered = short sold price + decrease in share price to trigger margin call

Share price at which margin call is triggered = $65 + $13 = $78.00

E - none of the above