Suppose the current stock price of XYZ company is $65 per share. You want to borrow 1,000 shares of the stocks from the broker for short sale. The initial margin is 60% and minimum margin is 30%. 

Answer the following questions:

a. How much money do you need to provide from your own pocket at the beginning? (2 mark)

b. If stock price increases to $73 per share, what is the value of your liability will be? And what is the new margin? (4 marks)

c. If stock price decreases to $55 per share, what is the value of equity you own? (2 mark)

d. How high can the stock price rise before you receive a margin call? (2

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Answer rating: 100% (QA)

a Calculate the Initial Investment In a short sale you borrow shares from a broker and sell them immediately in the market You need to provide collate... View the full answer