After the analysis, you sell short 500 shares of Platform Tech,Co., stock (PLT) at $350 a share. Your broker charges you interest on the borrowed stock at $0.20 per share per day. You also have an initial margin requirement of 50%, and a minimum maintenance margin of 30%.

Q5.1 What is the required total dollar amount of your initial margin?

Continue with Q5: Assuming you put up just enough cash as collateral to satisfy initial margin. After 10 days, the stock price rises to $450.
Q5.2 What is your current margin after 10 days? (Hint: calculate your equity as cash position plus gain/loss, and remember to include interest paid).

Continue with Q5:
Q5.3 Your broker issued a margin call. How many (whole) shares will you have to buy back in order to satisfy the minimum margin requirement at the end of Day 10?

Continue with Q5: Another 10 days pass (thankfully no more margin calls), the stock price declines to $250. You buy back all of the shares and thereby close out your short PLT trade.
Q5.4 What is your total profit or loss from Day 0 to day 20?

Continue with Q5:
Q5.5 What would your profit loss be if you had not encountered the margin call?

Answer rating: 100% (QA)

Answer 1 Required total dollar amount of your init... View the full answer