You are selling short 1000 shares of company A, which is currently selling its shares for $100/share. This company is paying a dividend of 0.8$ per share. The initial margin is 50%. • Set the initial balance sheet. • Set the balance sheet in case the price goes up 20% • If the maintenance margin is 40%, how much can the price increase before the investor would get a margin call? What will be the rate of return if the price of the stock fell to 90$? What will be the rate of return in case the price increases to 120$?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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You are selling short 1000 shares of company A, which is currently selling its shares for $100/share. This
company is paying a dividend of 0.8$ per share. The initial margin is 50%.
Set the initial balance sheet.
• Set the balance sheet in case the price goes up 20%
If the maintenance margin is 40%, how much can the price increase before the investor would
get a margin call?
What will be the rate of return if the price of the stock fell to 90$?
What will be the rate of return in case the price increases to 120$?
Transcribed Image Text:You are selling short 1000 shares of company A, which is currently selling its shares for $100/share. This company is paying a dividend of 0.8$ per share. The initial margin is 50%. Set the initial balance sheet. • Set the balance sheet in case the price goes up 20% If the maintenance margin is 40%, how much can the price increase before the investor would get a margin call? What will be the rate of return if the price of the stock fell to 90$? What will be the rate of return in case the price increases to 120$?
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