You believe the stock in Freeze Frame Co. is going to fall, so you short 900 sha
ID: 2728344 • Letter: Y
Question
You believe the stock in Freeze Frame Co. is going to fall, so you short 900 shares at a price of $45. The initial margin is 50 percent.
Construct an equity balance sheet for a stock price of $40 per share. (Input all amounts as positive values. Omit the "$" sign in your response.)
Liabilities and account equity
What is your margin? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)
2-a.Construct an equity balance sheet for a stock price of $40 per share. (Input all amounts as positive values. Omit the "$" sign in your response.)
Explanation / Answer
Part 2a)
Proceed from sale = no. of stocks shorted x strike price
= 900 x 45
= 40,500
Initial margin deposit = proceed from sale x initial margin %
= 40,500 x 50%
= 20,250
Short position = no. of stocks shorted x current price
= 900 x 40
= 36,000
Account Equity = Initial margin deposit + proceed from sale – short position
= 20,250 + 40,500 – 36,000
= 24,750
Equity balance sheet
Assets
Liabilities and Account Equity
Proceeds from sale
40500
Short position
36000
Initial Margin deposit
20250
Account equity
24750
Total
60750
60750
Part 2b)
Margin % = Equity/ proceeds from sale
= 24,750 / 40,500
= 61.11%
Assets
Liabilities and Account Equity
Proceeds from sale
40500
Short position
36000
Initial Margin deposit
20250
Account equity
24750
Total
60750
60750
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