Question: What is the rebate rate that would keep your position alive? You want to short 100 shares of H&B's stock which is currently selling for
You want to short 100 shares of H&B's stock which is currently selling for $100. The dealer offers you a short position with an initial margin of 50% BUT with a maintenance margin of 40%. You use all of your funds to meet the initial margin. Suppose you are given knowledge of the stock's future prices, but have to act on it today (when stock is $100). Day 2 Closing Price Day 3 Closing Price Day 4 Closing Price 105 110 90 Suppose your lender invests your collateral and gives you a part of the interest, rebate rate (R). Assume you need the extra cash by the beginning of day 3, and the rebate rate (R) compounds once between day 1 and day 2 (put simply, R is a simple rate that compounds once) What is the rebate rate (R) that would keep your position alive? You want to short 100 shares of H&B's stock which is currently selling for $100. The dealer offers you a short position with an initial margin of 50% BUT with a maintenance margin of 40%. You use all of your funds to meet the initial margin. Suppose you are given knowledge of the stock's future prices, but have to act on it today (when stock is $100). Day 2 Closing Price Day 3 Closing Price Day 4 Closing Price 105 110 90 Suppose your lender invests your collateral and gives you a part of the interest, rebate rate (R). Assume you need the extra cash by the beginning of day 3, and the rebate rate (R) compounds once between day 1 and day 2 (put simply, R is a simple rate that compounds once) What is the rebate rate (R) that would keep your position alive
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