Question

In: Finance

Tina sells short 1,200 shares of Alpha Inc. that are currentlyselling at $54 per share....

Tina sells short 1,200 shares of Alpha Inc. that are currently selling at $54 per share. She posts the 50% margin required on the short sale. Her broker requires a 30% maintenance margin. The firm pays no dividends. Tina earns no interest on the funds in her margin account. At what stock price will Tina get a margin call?


A.

$65.7/share


B.

$41.5/share


C.

$77.1/share


D.

$62.3/share

Solutions

Expert Solution

here total amount = Shares*Current Share Price + Shares* current share Price*initial margin requirement

= 1200*54 + 1200*54*0.5

= 64800 + 32400

= $97,200

Assume that Price at which investor will receive margin call =P

Maintenance margin = (Total amount - P*total shares)/Shares * P

0.3 = (97200 - P*1200)/1200*P

0.3*1200*P = 97200 - 1200P

360P + 1200P = 97200

1560 P = 97200

P = $62.3 per share

hence option D is correct here

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Tina sells short 1,200 shares of Alpha Inc. that are currently selling at $54 per share....
Tina sells short 1,200 shares of Alpha Inc. that are currently selling at $54 per share. She posts the 50% margin required on the short sale. Her broker requires a 30% maintenance margin. The firm pays no dividends. Tina earns no interest on the funds in her margin account. What is the rate of return on the investment if the price of Alpha stock changes from $54 to $47? A. 25.93% B. 12.96% C. 27.66% D. -12.96%
An investor short sells 200 shares of a stock for $ 68.67 per share. The initial...
An investor short sells 200 shares of a stock for $ 68.67 per share. The initial margin is 53 % ​, and the maintenance margin is 40 % . The price of the stock rises to $ 81.73 per share. What is the​ margin, and will there be a margin​ call? The margin in the account is ______ ​%. ​ (Round to the nearest​ percent.) Because the current margin is (equal to, below or above) the maintenance​ margin, there (will...
The market value of Farmington Corp.'s common shares was quoted at $54 per share at December...
The market value of Farmington Corp.'s common shares was quoted at $54 per share at December 31, 2018, and 2017. Planetarium 's balance sheet at December 31, 2018, and 2017, and statement of income and retained earnings for the years then ended are presented below: Farmington Corp. Balance Sheet December 31 2018 2017 Assets: Current assets: Cash $ 9,000,000 $ 5,200,000 Short-term investments 17,200,000 15,400,000 Accounts receivable (net) 109,000,000 111,000,000 Inventories, lower of cost or market 122,000,000 140,000,000 Prepaid expenses...
An investor sells short 500 shares of Microsoft at $100 per share on February 2, 2018. On February 23, 2018, Microsoft pays a $1 per share dividend.
An investor sells short 500 shares of Microsoft at $100 per share on February 2, 2018. On February 23, 2018, Microsoft pays a $1 per share dividend. The short seller pays $500 to the lender of the stock. The lender closes the short sale by purchasing 500 shares at $100 per share and delivers those shares to the lender on March 15, 2018 to close the short sale.a. The lender is a corporation. Does it get the dividends received deduction...
Bonata Inc. sells 1,400 common shares on subscription basis at $65 per share on June 1...
Bonata Inc. sells 1,400 common shares on subscription basis at $65 per share on June 1 and accepts 45% down payment. On December 1, Bonata collect the remaining 55% and issues the shares. Prepare the company's journal entries.
The shares of XYZ Inc. are currently selling for $120 per share. The shares are expected...
The shares of XYZ Inc. are currently selling for $120 per share. The shares are expected to go up by 10 percent or down by 5 percent in each of the following two months (Month 1 and Month 2). XYZ Inc. is also expected to pay a dividend yield of 2 percent at the end of Month 1. The risk-free rate is 0.5 percent per month. What is the value of an American call option on XYZ shares, with an...
The shares of XYZ Inc. are currently selling for $120 per share. The shares are expected...
The shares of XYZ Inc. are currently selling for $120 per share. The shares are expected to go up by 10 percent or down by 5 percent in each of the following two months (Month 1 and Month 2). XYZ Inc. is also expected to pay a dividend yield of 2 percent at the end of Month 1. The risk-free rate is 0.5 percent per month. a.       What is the value of an American call option on XYZ shares, with...
McCann Catching, Inc. has 2.00 milion shares of stock outstanding. The stock currently sells for $12.64 per share
McCann Catching, Inc. has 2.00 milion shares of stock outstanding. The stock currently sells for $12.64 per share. The firm's debt is publicly traded and was recently quoted at 91.00% of face value. It has a total face value of $17.00million , and it is currently priced to yield 9.00%. The risk free rate is 3.00% and the market risk premium is 8.00%. You've estimated that the firm has a beta of 1.29. The corporate tax rate is 38.00%.The firm...
A short seller has sold 300 shares at $210 per share with an initial margin of...
A short seller has sold 300 shares at $210 per share with an initial margin of 60%. A few days later the stock paid $4 dividends per share. What is the profit to the short seller if the share price is now $180? 10,200 9,000 -10,200 7,800
A short seller has sold 300 shares at $210 per share with an initial margin of...
A short seller has sold 300 shares at $210 per share with an initial margin of 60%. A few days later the stock paid $4 dividends per share. What is the profit to the short seller if the share price is now $180? 10,200 7,800 9,000 -10,200
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT