Short-selling Suppose Susan opens a brokerage account to short-sell 100 shares of XYZ at $10 per share. The initial margin requirement is 50%, the maintenance margin is 20%. If Susan borrows stocks to short-sell, the interest rate on the stock loan (in terms of dollar amount) is 10% per annum. 

 

a. How much she need to deposit in the account to short-sell 100 shares of XYZ?

 

 b. If the price increases to $11 a year later, what is the remaining margin on her account (in dollar amount)? 

 

c. Compute the rate of return to her investment if the price increases to $11 a year later. 

 

d. How high can the price of the stock rise before she gets a margin call? Assume the price increase happens immediately after she sells short the stock. 

Answer rating: 100% (QA)

a Since the initial margin requirement is 50 Susan would need to deposit 50 of the total value of th... View the full answer