Consider the following case: The market price of Stock F is $120 today (July 22, 2021). An investor buys a call option on stock F today with: Expiration date: September 17, 2021 Exercise price: $100 (Assumptions: The option is European-style (investors can only exercise the option at the expiration date) and we ignore other fees or costs on the option.) Question: Suppose on September 17, 2021, the market price of Stock F is $90. Will the investor exercise the option? Please provide your answer with • Margin Account & Margin Call Suppose the current price for Stock K is $10 per share. An investor wants to buy $2,000 worth of stock K ($2,000 = $10*200 shares of Stock K) through a margin account with the broker. The initial margin requirement is 50%. The initial pay of the investor is $1,200 and he will borrow the rest ($2,000 - $1,200 = $800) from the broker. Please answer the following questions with detailed steps. 

Question 1: Calculate the initial margin (in percentage). 

Question 2: The broker set the maintenance margin at 25%. If the price of Stock K drops to $5 per share, will the investor get a margin call? 

Question 3: The broker set the maintenance margin at 25%. How far could the price fall before the investor get a margin call? (i.e. What is the price that will just satisfy the maintenance margin requirement?)

Answer rating: 100% (QA)

Question 1 Calculate the initial margin in percentage The initial margin requirement is 50 of the to... View the full answer