Question

In: Finance

An investor sells short 1,000 shares of The Goldman Sachs Group (GS) at a price of...

An investor sells short 1,000 shares of The Goldman Sachs Group (GS) at a price of $200 per share.

a. How much is his required initial equity given margin requirements of 60%?

c. (instead of b) Assuming a 25% maintenance margin, at what price will the investor get a margin call, and how much cash would he need to put up?

Solutions

Expert Solution

Total shares shorted 1000

Price per share = 200

Total position value = 200*1000 = 2,00,000

A.

With margin requirment if 60%

Initial equity required = 60% of 2,00,000

= 1,20,000

B

Maintainice margin =25%

Initial margin =60%

So

Margin call price = (1+initial margin) / (1+Maint Margin) *sell price=  

= 1.60 / 1.25 x200 = 256 is the margin call price

Thanks.

jeff jeffy answered 2 years ago
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