A bearish investor who wants to bet against a company can enter a short sale. Suppose...

 

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A bearish investor who wants to bet against a company can enter a short sale. Suppose you are bearish on XYZ stock, and its market price is $100 per share. You tell your broker to sell short 1,000 shares. Suppose the broker has a 50% initial percentage margin on short sales and you use cash serving as the margin. Suppose the broker has a maintenance margin of 30% on short sales. 1) construct the balance sheet if XYZ goes up to $130. 2) find how far could the stock price rise before you would get a margin call? A bearish investor who wants to bet against a company can enter a short sale. Suppose you are bearish on XYZ stock, and its market price is $100 per share. You tell your broker to sell short 1,000 shares. Suppose the broker has a 50% initial percentage margin on short sales and you use cash serving as the margin. Suppose the broker has a maintenance margin of 30% on short sales. 1) construct the balance sheet if XYZ goes up to $130. 2) find how far could the stock price rise before you would get a margin call?

Answer rating: 100% (QA)

1 Balance Sheet if XYZ goes up to 130 Before the price increase Cash initial margin 50000 ... View the full answer