On October 1 you short sell 1000 share of Apple at 110 per share .this purchase

Question

On October 1 you short sell 1000 share of Apple at 110 per share .this purchase is excuted as margin trade with an initial margin 50%. The. Maintenance margin for this position is 30%. A- after 6 month, Apple stock is selling for 97 per share. Apple has paid a dividend during this period. Will you receive a margin call? Explain why or why notif you choose to short the position at this time , what is your holding period return on the transaction ? Ignore commission and interest expenses. B- explain how the holding period returns from a short position in Apple would compare with the returns represented by the change in the actual value of Apple. Please provide numerical example On October 1 you short sell 1000 share of Apple at 110 per share .this purchase is excuted as margin trade with an initial margin 50%. The. Maintenance margin for this position is 30%. A- after 6 month, Apple stock is selling for 97 per share. Apple has paid a dividend during this period. Will you receive a margin call? Explain why or why notif you choose to short the position at this time , what is your holding period return on the transaction ? Ignore commission and interest expenses. B- explain how the holding period returns from a short position in Apple would compare with the returns represented by the change in the actual value of Apple. Please provide numerical example A- after 6 month, Apple stock is selling for 97 per share. Apple has paid a dividend during this period. Will you receive a margin call? Explain why or why notif you choose to short the position at this time , what is your holding period return on the transaction ? Ignore commission and interest expenses. B- explain how the holding period returns from a short position in Apple would compare with the returns represented by the change in the actual value of Apple. Please provide numerical example

Explanation / Answer

Part A

Margin call price =purchase price x(1+ initial margin)/ (1+maintenance margin)

                            = 110 x (1+0.50)/(1+0.30)

                            = 126.92

There will not be any margin call as the price is lower than margin call price.

Holding period return = (110-97)/(110 x 0.50)

                                       = 23.64%

Part B

Change in price of apple % = (110-97)/110

                                                = 11.82%

Holding period return is greater than change in price of the stock because of margin trading.

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