Suppose that you sell short 1000 shares of Intel, currently selling for $40 per

Question

Suppose that you sell short 1000 shares of Intel, currently selling for $40 per share, and give your broker $25,000 to establish your margin account.

Redo parts (a) and (b), but now assume that Intel also has paid a year-end dividend of $2 per share. The prices in part (a) should be interpreted as ex-dividend, that is, prices after the dividend has been paid. (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places. Omit the "%" & "$" signs in your response.)

I need to know the MARGIN CALL WILL BE MADE AT PRICE $..............PLEASE.

Suppose that you sell short 1000 shares of Intel, currently selling for $40 per share, and give your broker $25,000 to establish your margin account.

c.

Redo parts (a) and (b), but now assume that Intel also has paid a year-end dividend of $2 per share. The prices in part (a) should be interpreted as ex-dividend, that is, prices after the dividend has been paid. (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places. Omit the "%" & "$" signs in your response.)

        (i) Rate of return %   (ii) Rate of return %   (iii) Rate of return %    Margin call will be made at price $ or higher

I need to know the MARGIN CALL WILL BE MADE AT PRICE $..............PLEASE.

Explanation / Answer

Assets = Invested Cash + Proceeds from Short Sale – Dividend

   = 25000 + (50*1000) -(2*1000) = 73000

Liability = Value of 1000 Shares = 1000*P

Equity = Assets – Liabilities = 73000 - 1000*P

Assuming margin rate as 25% in part b

Margin rate = E/L = (73000 - 1000*P) / 1000*P

(73000 - 1000*P) / 1000*P < 0.25

(73000 - 1000*P) < 250*P

P > 73000 / 1250

P>58.4

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