Ask Question
21 March, 14:24

Old Economy Traders opened an account to short sell 1,000 shares of Internet Dreams from the previous problem. The initial margin requirement was 50%. (The margin account pays no interest.) A year later, the price of Internet Dreams has risen from $40 to $50, and the stock has paid a dividend of $2 per share. a. What is the remaining margin in the account

+3
Answers (1)
  1. 21 March, 15:28
    0
    a. 38%

    b. No because the margin is above the requirement at 38%

    c.-150%

    Explanation:

    a.

    1000 shares*$40 per share = 40000

    margin requirement is 50% so equity = 20000

    1 year later price increase to 50

    $1000 shares*$50 per share = 50000

    dividend = $2*1000 = 2000

    margin = 20000/52000 = 38%

    b.

    No because the margin is above the requirement at 38%

    c.

    Price of 1000 stock year 1 at 50$/share = 50000

    40000 - 50000 = - 10000

    Rate of return = (-10000 - 20000) / 20000 = - 150%
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Old Economy Traders opened an account to short sell 1,000 shares of Internet Dreams from the previous problem. The initial margin ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers