2. Mr. Handsome is interested in the UGLY stock. He finds that the price should be...

 

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2. Mr. Handsome is interested in the UGLY stock. He finds that the price should be $3, but the market price is $5 per share now. Mr. Handsome has $2,000 in his margin account. The initial margin requirement is 40%, and the maintenance margin is 30%. Assume there are no interests and service charges. (a) Mr. Handsome decides to short sell the UGLY stock, but he does not have more money to deposit to his margin account. Then, how many shares can he short? (b) Mr. Handsome is very confident in his prediction. So he wants to short as many as possible. But unfortunately, the price does not decrease to $3. It decreases to $4. What is the margin now? 2. Mr. Handsome is interested in the UGLY stock. He finds that the price should be $3, but the market price is $5 per share now. Mr. Handsome has $2,000 in his margin account. The initial margin requirement is 40%, and the maintenance margin is 30%. Assume there are no interests and service charges. (a) Mr. Handsome decides to short sell the UGLY stock, but he does not have more money to deposit to his margin account. Then, how many shares can he short? (b) Mr. Handsome is very confident in his prediction. So he wants to short as many as possible. But unfortunately, the price does not decrease to $3. It decreases to $4. What is the margin now?

Answer rating: 100% (QA)

A Mr Handsome has 2000 in his margin account so he can short ... View the full answer