BUSI 420 Textbook Assignment 1 Margin Calls & Short Selling Assignment solutions complete answers

BUSI 420 Textbook Assignment 1 Margin Calls & Short Selling Assignment solutions complete answers

 

Question 1

 

You decide to buy 1,500 shares of stock at a price of $90 and an initial margin of 65 percent. What is the maximum percentage decline in the stock price before you will receive a margin call if the maintenance margin is 40 percent? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Enter your answer as a positive value.)

 

Question 2

 

You believe the price of Freeze Frame Co. stock is going to fall, so you short 400 shares at a price of $62. The initial margin is 55 percent. Ignore dividends.

 

a. Construct the equity balance sheet for the original trade. (Input all amounts as positive values.)

 

b-1. Construct an equity balance sheet for a stock price of $57 per share. (Input all amounts as positive values.)

 

b-2. What is your margin? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

b-3. What is your effective annual return if you cover your short position at this price in five months? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

c-1. Construct an equity balance sheet for a stock price of $67 per share. (Input all amounts as positive values.)

 

c-2. What is your margin? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

c-3. What is your effective annual return if you cover your short position at this price in five months? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

 

You believe the price of Freeze Frame Company stock is going to fall, so you short 500 shares at a price of $66. The initial margin is 70 percent. Ignore dividends.

1.     a. Construct the equity balance sheet for the original trade.

Note: Input all amounts as positive values.

2.     b-1. Construct equity balance sheets for a stock price of $57 per share.

Note: Input all amounts as positive values.

3.     b-2. What is your margin?

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.

4.     b-3. What is your effective annual return if you cover your short position at this price in four months?

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.

5.     c-1. Construct equity balance sheets for a stock price of $71 per share.

Note: Input all amounts as positive values.

6.     c-2. What is your margin?

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.

7.     c-3. What is your effective annual return if you cover your short position at this price in four months?

Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.

 

You decide to buy 1,100 shares of stock at a price of $82 and an initial margin of 80 percent. What is the maximum percentage decline in the stock price before you will receive a margin call if the maintenance margin is 40 percent?

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Input the amount as a positive value.