Assume that you buy 200 shares of the Mulligan Corp. on Margin at a price of...

Assume that you buy 200 shares of the Mulligan Corp. on Margin at a price of $75 per share. Your broker requires 60% initial margin and 35% minimum maintenance margin.

Assume that instead, you sell short 200 shares of Mulligan at $75 per share with a 50% margin requirement. (7 points total)

a) Assume that the price has increased to $88 one month later. What is the remaining equity in your account and what rate of return have you earned on the initial investment?

b) Now do the same as in part a assuming the price has fallen to $54 per share.

c) If the minimum maintenance margin on the short sale is 30%, at what stock price would a margin call be made?

Expert Solution

jeff jeffy answered 3 months ago

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