You believe the price of Freeze Frame Co. stock is going to fall, so you short 8
ID: 2780199 • Letter: Y
Question
You believe the price of Freeze Frame Co. stock is going to fall, so you short 800 shares at a price of $60. The initial margin is 60 percent. Ignore dividends.
a. Construct the equity balance sheet for the original trade.
b-1. Construct an equity balance sheet for a stock price of $56 per share.
b-2. What is your margin? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
b-3. What is your effective annual return if you cover your short position at this price in three months? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
c-1. Construct an equity balance sheet for a stock price of $65 per share
c-2.What is your margin? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
c-3. What is your effective annual return if you cover your short position at this price in three months? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Explanation / Answer
b-1. Construct an equity balance sheet for a stock price of $56 per share.
Proceesa from sale
44800
Margin loan
28800
Account equity
16000
total
44800
Total
44800
Margin 16000/44800 = 35.71%
c-1. Construct an equity balance sheet for a stock price of $65 per share
Proceesa from sale
52000
Margin loan
28800
Account equity
23200
total
52000
Total
52000
Margin 23200/52000 =44.61
Proceesa from sale
44800
Margin loan
28800
Account equity
16000
total
44800
Total
44800
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.