Suppose that an investor sells 400 shares short at $50 per share. The initial margin is 50% and the maintenance margin is 30%. After 125 days, the investor purchases the shares for $40 and closes the short position. During the holding period, the shares paid a dividend of $2.50 per share. Show the calculations for the numbers that you enter in the “T” accounts.

a). Show the investor’s beginning “T” account. (calcs here)

b). At what price would the investor receive a margin call?

c). Show the investor’s “T” account at the share price of $40. (calcs. here)

d). What is the actual margin at a share price of $40? 

e). Calculate the investor’s return for the 125 day holding period.

Answer rating: 100% (QA)

Value of investment 40050 20000 Initial margin 50 of value 10000 Minimum margin 30 of investment 6... View the full answer