Question

. On January 1, you tell your broker to sell short 500 shares of Apple Inc. stock at a price of $100 per share. You use $30,000 cash to serve as a margin. (a) (5 points) How high can the stock price go before you get a margin call if the maintenance margin is 50%? (b) Assume that on April 1, a dividend of $4 per share was paid. On May 1, you covered the short sale by buying the stock at a price of $105 per share and returned your borrowed shares. I. (7 points) What is the value of your account on May 1 after returning borrowed shares? II. (3 points) What is your rate of return (%) from this short sale??

Answer 1

Answers page: 01 a) Given details number of shares = 500 Current market price = 1100 fos share worth initial margin = $ 30000 100 X 500 let the price - 50'|| 80000 80000/750 so the initial margin 6046 maintenance margin = 5017 be Р where margin call happens ( 30000-(p-100)x500)/(px500) px 500 x 50 1. 30000 - 500p + 50000 280p 80000 - 500p 750p Р p P =406.667 = Buying 'price-4105 dividend paid = $uper we have shorted the stock so we are entitled to pay the dividend to the buyer value in account =$30000 +(4100-105-4)X500 = $ 25500 (0) Return value on ist initial $ 30000 - $25500 (6) selling parte or shorking pure =tloo share AS amount margin may - 4500 Return to $4500 | 30000 15:11