Use the following to answer the next three questions 1) The stock of Flop Indust

Question

Use the following to answer the next three questions

1) The stock of Flop Industries is trading at $45. You feel the stock price will decline, so you short 600 shares at an initial margin of 75 percent. The maintenance margin is 45 percent and your broker charges a 5% annual rate on borrowed funds.

Find your total deposit with your broker.

27000

63000

33750

None of the above

2) Will you receive a margin call if the stock climbs to $55 the day after you open your position? yes or no

Find your return on invested capital if you close your position after 9 months and the stock is trading at $48.5.

-.1412

-.1162

.0912

-.1187

27000

63000

33750

None of the above

Explanation / Answer

Ans;

1. None of the above

2. No .Because whenever the stock price rises, the overall margin account is added further which increases margin rate

c. .0912

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