Question

You believe the stock in Freeze Frame Co. is going to fall, so you short 1,000 shares at a price of $57. The initial margin is 55 percent.

1.	Construct the equity balance sheet for the original trade. (Input all amounts as positive values. Omit the "$" sign in your response.)

Assets		Liabilities and account equity
Proceeds from sale	$		Short position	$
Initial margin deposit			Account equity
Total	$		Total	$

2-a.	Construct an equity balance sheet for a stock price of $52 per share. (Input all amounts as positive values. Omit the "$" sign in your response.)

Assets		Liabilities and account equity
Proceeds from sale	$		Short position	$
Initial margin deposit			Account equity
Total	$		Total	$

2-b.	What is your margin? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Margin

%

2-c.	What is your effective annual return if you cover your short position at this price in 5 months? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Effective annual return

%

3-a.	Construct an equity balance sheet for a stock price of $62 per share.(Input all amounts as positive values. Omit the "$" sign in your response.)

Assets		Liabilities and account equity
Proceeds from sale	$		Short position	$
Initial margin deposit			Account equity
Total	$		Total	$

3-b.	What is your margin? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Margin

%

3-c.	What is your effective annual return if you cover your short position at this price in 5 months? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Effective annual return

%

Answer 1