Shares in Company B are currently trading in the market at a price of $95....
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Finance
Shares in Company B are currently trading in the market at a price of $95. You believe the stock in Company B is going to fall, so you short 200 shares. The initial margin is 50%.
a. Derive the balance sheet for the original trade.
b. Now suppose the share price falls to $92 and answer the following questions: How has the balance sheet changed? What is your margin? What is your holding period rate of return? (Ignore any financing costs.)
c. Suppose instead that the share price rises to $100. Answer the following questions: How has the balance sheet changed? What is your margin? What is your holding period rate of return? (Ignore any financing costs.)
d. If the maintenance margin is 30%, at what price you will get the margin call?
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