The stock price of Google is $549. You have $10,000 saved in a savings account. The monthly interest rate is 0.1%.

Part 1

You think the stock price will go down soon and want to trade 20 shares. What should you do? Enter 20 for buying 20 shares (on margin if necessary), or -20 for selling or short-selling 20 shares.

You should short-sell 20 shares to benefit from a decrease in the stock price: -20.

Part 2

If the initial margin is 50%, what is the minimum additional dollar amount that you have to deposit in your brokerage account?

Short-selling 20 shares give us some cash, which must be kept in the brokerage account:

With an initial margin requirement of 50%, we have to add 50% of the proceeds from short-selling in the form of additional cash to the account:

Part 3

What is your initial percentage margin (entered as a decimal number) once you've completed the deposit calculated in part 2?

Part 4

Two months later, the stock price is $569. Google paid a dividend of $5 per share just before the two months were over. What is your percentage margin (entered as a decimal number)?

Answer rating: 100% (QA)

part 1 Correct Shortselling 20 shares means you would sell the shares you do not currently own in ho... View the full answer