Question

In: Finance

4. You are bearish on Google stock and decide to sell short 20 shares at the...

4. You are bearish on Google stock and decide to sell short 20 shares at the current market price of $1500 per share.

(a) How much cash must you put into your brokerage account if the broker’s initial margin requirement is 50% of the value of the short position?

(b) How high can the stock price rise before you get a margin call if the maintenance margin is 20%?

Solutions

Expert Solution

a.

Value of Position = 20(1,500) = $30,000

Initial Margin put = 0.50(30,000) = $15,000

b.

Margin Call Price = 1,500(1 + 0.50)/(1 + 0.20)

Margin Call Price = $1,875

jeff jeffy answered 2 years ago
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