Question: a)What is a margin call? To what level should the trader top up her/his account once receiving a margin call? (7 marks) b)An investor shorts

a)What is a margin call? To what level should the trader top up her/his account once receiving a margin call?

(7 marks)

b)An investor shorts 100 shares of a stock when the share price is $50 and closes out the position six months later when the share price is $43. The stock pays a dividend of $3 per share during the six months. Does the investor gain or lose? How much does the investor gain/lose?

(8 marks)

c)The spot price of an asset that pays no dividend is $30 and the risk-free rate for all maturities (with continuous compounding) is 10% per annum. What is the three-year forward price?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Accounting Questions!

question a)What is a margin call? To what level should the trader top up her/his account once receiving a margin call? (7 marks) b)An investor shorts 100 shares of a stock when the share price is $50...

Which of the following is true of LIBOR The LIBOR rate is free of credit risk A LIBOR rate is lower than the Treasury rate when the two have the same maturity It is a rate used when borrowing and...

Course: MGMT3050 Investment & Analysis Please answer all parts Question 2 (12 marks) a) An investor borrows 100 shares of XYZ stock that is currently trading at $35 per share, and sells it. The...

ONE 0 0.4. assets. are K450,000, current asset is A. Consider a company for which current K200,000, total assets are K690,000, earnings before interest and taxes is K80,000, sales are K2,300,000, the...

(b) A trader buys a call option with a strike price of 45 and a put option with a strike price of 40. Both options have the same maturity. The call costs 3 and the put costs 4. Draw a diagram showing...

1. A trader shorts 100 shares of stock with initial price per share of $75. The broker requires 150% initial margin, and 125% maintenance margin. How much does the trader need to add for margin over...

FIN201 Final Exam Sample MULTIPLE CHOICE. 1. Why will banks permit the use of an overdraft as suitable for funding the purchase of inventory that will quickly be converted into cash? A. To assist a...

Task Part 1 The assets and operations of two firms are the same in a world without taxes. Firm 1 is all equity financed, while firm 2 uses debt and equity. a)The value of both firms is the same...

(4 points) Explain why derivatives are better described as financial instruments and not as financial securities. (6 points) The futures market exchange in the UAE introduced two exotic futures...

Consult Paragraphs 4-8 of AU Section 322. Do you believe that auditors should be allowed to use the work of other professionals as evidence to support their own internal control audit opinion? Why or...

Identify the effect caused by each of the following transactions on the Accounts Receivable Subledger: Debit (DR), Credit (CR), or No Effect (NE) 1. Sale of merchandise on credit. 2. Purchase of...

Rackie Marulacturing Company makes a papduct that it sels for $ 2 0 0 per unt. The compaly incurs walabie manufacturing coves of adminintrative couts me 5 2 5 6 . 0 0 0 per year Apquired Determine...

You will post a minimum of 250 words in the textbox for this journal assignment in response to the bullet item(s) below. Respond to the following: Apply the six steps of the personal selling process...

Collect sales messages in different formats (e.g., letter, flyer, brochure, postcard). Which are effective and which are ineffective? Explain why. (Objective 4)

Discuss three situations or messages in which someone tried to persuade you to do something. Analyze the strengths and weaknesses of these oral or written messages. (Objective 3)

Your instructor recently talked about the work she has been doing with a not-for-profit organization, Dress for Success. This group works with economically disadvantaged women and encourages...