Calculate Candy Cummings's rate of return in parts (a) and (b) of Problem 10, assuming that the short loan was flat but the initial margin deposit earned interest at a rate of 8%, and that the prices of $58 and $42 were observed after one year during which the firm did not pay any dividends.
In problem 10
Through a margin account, Candy Cummings short-sells 200 shares of Madison Inc. stock for $50 per share. The initial margin requirement is 45%.
a. If Madison stock subsequently rises to $58 per share, what is the equity in Candy's account?
b. If Madison stock subsequently falls to $42 per share, what is the equity in Candy's account?