You are pessimistic on CBA stock (current market price = $40 per share) and you order...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You are pessimistic on CBA stock (current market price = $40 per share) and you order your broker to sell short 2,000 shares. The broker requires you to post an initial margin of 50% and a maintenance margin of 30% on short sales. CBA has paid a dividend of $1 per share before you covered the short position. 6. What is the initial margin deposit in Dollars? 7. What is the asset balance on your account immediately following the short sale? 8. How high can CBA's price rise before you get a margin call? 9. What would be your rate of return after one year if you repurchase the stock at $50 per share? Assume the repurchase price is an ex-dividend price. 10. What would be your rate of return after one year if you repurchase the stock at $30 per share? Assume the repurchase price is an ex-dividend price. You are pessimistic on CBA stock (current market price = $40 per share) and you order your broker to sell short 2,000 shares. The broker requires you to post an initial margin of 50% and a maintenance margin of 30% on short sales. CBA has paid a dividend of $1 per share before you covered the short position. 6. What is the initial margin deposit in Dollars? 7. What is the asset balance on your account immediately following the short sale? 8. How high can CBA's price rise before you get a margin call? 9. What would be your rate of return after one year if you repurchase the stock at $50 per share? Assume the repurchase price is an ex-dividend price. 10. What would be your rate of return after one year if you repurchase the stock at $30 per share? Assume the repurchase price is an ex-dividend price.
Expert Answer:
Answer rating: 100% (QA)
6 The initial margin deposit is 50 of the value of the short sale Since you sold short 2000 shares at 40 per share the value of the short sale is Value of the short sale 2000 shares x 40 per share 800... View the full answer
Related Book For
Fundamentals of Investments Valuation and Management
ISBN: 978-0077283292
5th edition
Authors: Bradford D. Jordan, Thomas W. Miller
Posted Date:
Students also viewed these finance questions
-
Consider the data sequence shown in Table 7.16 for a given object. Count the number of occurrences for the sequence ({p}{q}{r}) according to the following counting methods: Assume that ws = 0, mingap...
-
Complete the following table for a single firm operating in labor market A and product market AA: a. What, if anything, can one conclude about the degree of competition in labor market A and product...
-
Profit Profit 1. On the first graph below depict the possible payoffs at the expiration of a call option for euro with a strike price of $1.0938 per euro that you sold for $0.06 per euro. On the...
-
Given: Pre-tensioned cables AB and AD, having tensions of 27 and T, respectively, are attached to end A of the L-shaped bracket and exert forces of FAB and FA AD; respectively, on the bracket due to...
-
Engine oil flows at a rate of I kg/s through a 5-mm-diameter straight tube. The oil has an inlet temperature of 45C and it is desired to heat the oil to a mean temperature of 80C at the exit of the...
-
On October 1, 2007, Adriana Lopez launched a computer services company, Success Systems, that is organized as a proprietorship and provides consulting services, computer system installations, and...
-
Sonic Drive-Ins borrowed money by issuing \(\$ 1,000,000\) of \(6 \%\) bonds payable at 96.5 . 1. How much cash did Sonic receive when it issued the bonds payable? 2. How much must Sonic pay back at...
-
What is the problem with time lags in technical analysis and why may the analysis lead to self-fulfilling predictions?
-
Assume that PE firm Omega is purchasing Company Alpha at the end of 2021. Purchase multiple is 10X LTM EBITDA. Company Alpha has $200mm of revenues in 2021, expected to grow $25mm annually for the...
-
Skylar and Walter Black have been married for 25 years. They live at 883 Scrub Brush Street, Apt. 52B, Las Vegas, NV 89125. Skylar is a stay-at-home parent and Walt is a high school teacher. His W-2...
-
Gentry Wholesalers accepts from Marigold Stores a $9,780, 4-month, 10% note dated May 31 in settlement of Marigold's overdue account. The maturity date of the note is September 30. What entry does...
-
On may 1 the company purchased a new digital thermometer system to monitor the fudge temperature during production. The total cost was $ 7 1 , 5 0 0 . $ 6 , 5 0 0 was paid in cash. The company issued...
-
Many retail companies are facing challenging financial situations as online shopping and low-priced competitors. Toys R Us seems to be a sign of what's to come for other retailers. Some are calling...
-
You deposit $100,000 in a savings account today. The money will earn an annual rate of 6% interest, compounded monthly, for the next 10 years. How much do you have in the account at the end of 10...
-
According to Smith, where does the division of labor come from? What challenges stand in the way of economic growth, in Smith's view? What do you think Smith would say about economic inequality?
-
On September 25, Bramble provided services to two clients and billed the clients a total of $700. On October 15, both clients paid their invoice in full. Bramble's cost related to this sale was $430...
-
Carol and Kiaan acquired 100% of the share capital in Echotwo Limited, a UK based trading company, in May 2005, with Carol acquiring 60 ordinary shares and Kiaan 40 shares, each at a cost of 5,000...
-
Interest Compounded Annually. When P dollars is invested at interest rate i, compounded annually, for t years, the investment grows to A dollars, where A = P(1 + i) t . Trevor's parents deposit $7800...
-
Explain the meaning of a Value-at-Risk statistic in terms of a smallest expected loss and the probability of such a loss.
-
From an investor's point of view, what is the difference between mortgage pools backed by GNMA, FNMA, and FHLMC?
-
In Problem 5, assume that you want to reindex with the index value at the beginning of the year equal to 100. What is the index level at the end of the year?
-
The following case deals with the problem of measuring the DTA and the related valuation allowance for year 4. The assumptions are as follows: Required Measure the deferred tax accounts and any...
-
The assumptions are as follows: The company has \($3,176\) of taxable income and \($100\) of tax credits for the current year. The \($84\) DTA for \($400\) of operating loss carryforwards was...
-
The following case deals with the recognition of a DTA, a DTL, and the determination of whether a valuation allowance is needed. The basic assumptions and facts are as follows: Required Complete the...
Study smarter with the SolutionInn App