Question

You believe the stock in Freeze Frame Co. is going to fall, so you short 700 shares at a price of $80. The initial margin is 60 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 $71 per share. (Input all amounts as positive values. Omit the "$" 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? (Round your answer 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 4 months? (Round your answer 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 $85 per share.(Input all amounts as positive values. Omit the "$" 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? (Round your answer 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 4 months? (Negative amounts should be indicated by a minus sign. Round your answer to 2 decimal places. Omit the "%" sign in your response.)

                 

Effective annual return

%

Answer 1