(a) Exercise 1 (10 points): You have just opened up an account at a discount broker with a cash deposit of $100,000. Your broker has indicated that the minimum/maintenance margin for your account is 32% and the margin interest rate is a 7.5% APR compounded monthly. The broker has granted you 10 commission-free trades (without expiration) with your initial deposit. Three months after establishing the short position, HLF shares decrease to $49/share. Calculate your paper profit after trading commissions and margin interest. $49.00 Price Number of Months Answer: In summary: Initial Cash Deposit Maintenance Margin APR Compounding Periods $100,000 32% 7.50% 12 (b) Three months later (six months after the initial short sale), HLF shares have increased in value to $77.30/share. Calculate the margin equity percentage in your acccount. Will your broker issue a margin call (Yes/No)? Your first trade is a short sale of 3,000 shares of Herbalife (HLF) at VWAP of $57.25/share. Price Number of Months $77.30 6 Price per Share Number of Shares Initial Margin Loan Amount $57.25 3,000 58% $171,750.00 Margin Equity %: Margin Call?: (c) In response to the increase in HLF shares after 6 months, you make another cash deposit of $100,000. What is the minimum price of HLF that would lead to a margin call after this deposit (assuming no additional margin interest accrues until this hypothetical margin call occurs)? Hint: Find New Margin Equity (Numerator in Part (b) + New Cash), Set Maintenance Margin and Solve for Share Price New Margin Equity: New Margin Equity %: $133,307.90 77.62% Minimum Share Price: (a) Exercise 1 (10 points): You have just opened up an account at a discount broker with a cash deposit of $100,000. Your broker has indicated that the minimum/maintenance margin for your account is 32% and the margin interest rate is a 7.5% APR compounded monthly. The broker has granted you 10 commission-free trades (without expiration) with your initial deposit. Three months after establishing the short position, HLF shares decrease to $49/share. Calculate your paper profit after trading commissions and margin interest. $49.00 Price Number of Months Answer: In summary: Initial Cash Deposit Maintenance Margin APR Compounding Periods $100,000 32% 7.50% 12 (b) Three months later (six months after the initial short sale), HLF shares have increased in value to $77.30/share. Calculate the margin equity percentage in your acccount. Will your broker issue a margin call (Yes/No)? Your first trade is a short sale of 3,000 shares of Herbalife (HLF) at VWAP of $57.25/share. Price Number of Months $77.30 6 Price per Share Number of Shares Initial Margin Loan Amount $57.25 3,000 58% $171,750.00 Margin Equity %: Margin Call?: (c) In response to the increase in HLF shares after 6 months, you make another cash deposit of $100,000. What is the minimum price of HLF that would lead to a margin call after this deposit (assuming no additional margin interest accrues until this hypothetical margin call occurs)? Hint: Find New Margin Equity (Numerator in Part (b) + New Cash), Set Maintenance Margin and Solve for Share Price New Margin Equity: New Margin Equity %: $133,307.90 77.62% Minimum Share Price