You short-sell a stock at the price of $50. The broker requires you to deposit an additional 50% margin (in addition to
Posted: Tue Jan 18, 2022 12:59 pm
You short-sell a stock at the price of $50. The broker requires
you to deposit an additional 50% margin (in addition to the 100% of
the proceeds from the short-sale). There is no interest on your
margin account and the stock pays no dividend.
Consider two scenarios:
1) Stock price starts increasing. In this case, the maintenance
margin is 30% and you need to provide additional cash in case of a
margin call.
2) Stock price declines. In this case, your margin requirement
stays the same as the initial 50%. In this case, you will receive
money from your margin account.
Consider the final price of the stock in the range of $20-$100
(with $5 increments). Calculate the money injection/withdrawal
to/from your margin account. [Hint: be careful about some
"inaction" region where you neither receive or pay money!]
Plot the value of cash you need to pay/receive for each of the
final price scenarios and upload it.
you to deposit an additional 50% margin (in addition to the 100% of
the proceeds from the short-sale). There is no interest on your
margin account and the stock pays no dividend.
Consider two scenarios:
1) Stock price starts increasing. In this case, the maintenance
margin is 30% and you need to provide additional cash in case of a
margin call.
2) Stock price declines. In this case, your margin requirement
stays the same as the initial 50%. In this case, you will receive
money from your margin account.
Consider the final price of the stock in the range of $20-$100
(with $5 increments). Calculate the money injection/withdrawal
to/from your margin account. [Hint: be careful about some
"inaction" region where you neither receive or pay money!]
Plot the value of cash you need to pay/receive for each of the
final price scenarios and upload it.