1. You and your friend Jack have different opinions about Tesla stock price. On Sep. 30,...

1. You and your friend Jack have different opinions about Tesla stock price. On Sep. 30, 2020, you did a short sale of Tesla stock at $429.01 for 1000 shares. The same day, Jack bought the Tesla stock at $429.01 for 1000 shares with margin. The initial margin and maintenance margin requirement for short sale is 150%. The initial margin and maintenance margin requirement for long on margin is 30% (assume no interest is charged on long on margin account). Below is the Tesla stock price in the next 2 days:

Oct. 01, 2020: $448.16

Oct. 02, 2020: $415.09.

1.Please calculate your daily margin ratio and Jack’s daily margin ratio for each of the next 2 days (Oct. 01 and Oct. 02). Please specify if margin call is received and how much money you or Jack need to deposit into the account after the margin call. (6 points)

2.If you and Jack both decide to close the account (i.e., selling the stock or covering the short selling position) after receiving the first margin call instead of depositing more money into the account, please calculate returns for both of you. (4 points)

Expert Solution

jeff jeffy answered 2 years ago

You and your friend Jack have different opinions about Tesla stock price. On Sep. 30, 2020,...

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