Suppose that you sell short 1,000 shares of Xtel, currently
selling for $60 per share, and give your broker $45,000 to
establish your margin account.
a. If you earn no interest on the funds in your
margin account, what will be your rate of return after one year if
Xtel stock is selling at: (i) $66; (ii) $60; (iii) $54? Assume that
Xtel pays no dividends.
b. If the maintenance margin is 25%, how high
can Xtel’s price rise before...