you sell Short 400 shares of xiel,currently selling for $50 per share, and give
ID: 2809682 • Letter: Y
Question
you sell Short 400 shares of xiel,currently selling for $50 per share, and give your broker $8,000 to establish your margin account a. If you earn no interest on the funds in your margin account, what will be your rate of return after one year if Xtel stock is selling at 0 54, ) S50 (l) $44? Assume that Xtel pays no dividends. (Leave no cells blank - be certain to enter "O" wherever requir Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.) i. Rate of return ii. Rate of return ii. Rate of return b. If the maintenance margin is 25%, how high can xters price rise before you get a margin call? (Round your answer to 2 decimal places.) Margin call will be made at priceExplanation / Answer
1) SInce we have sold 400 shares of $50 each, and given maintenance margin of $8000 to the broker.
Now at the $54, loss is $4 per share i.e. 400*4 = $1600, so return is 1600/8000 = -20%
2) at share price at $50, return is 0%
3) at share price of $44, profit is 6*400 = $2400 and so return is 2400/8000*100 = 30%
4) if maintenance margin is 25%, your losses can be 25% of the contribution i.e. 25%*8000 = $2000 before you get the margin call, so stock can risk by 2000/400 = $5 i.e to $55 before we get the margin call.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.