4. (a) Suppose you decide to short sell some GameStop shares. Their cur- rent price is $5, and you have $5000 available to you. Your broker tells you that you have an initial margin requirement of 50%, with maintenance margin 35%. i. How many shares can you shortsell? How much cash will there be in the margin account? ii. Suppose GameStop rises in value to $6 per share. What percent- age margin do you have now? iii. How high will GameStop have to rise before you will get a margin call?
4. (a) Suppose you decide to short sell some GameStop shares. Their cur- rent price is $5, and you have $5000 available to you. Your broker tells you that you have an initial margin requirement of 50%, with maintenance margin 35%. i. How many shares can you shortsell? How much cash will there be in the margin account? ii. Suppose GameStop rises in value to $6 per share. What percent- age margin do you have now? iii. How high will GameStop have to rise before you will get a margin call?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:4. (a) Suppose you decide to short sell some GameStop shares. Their cur-
rent price is $5, and you have $5000 available to you. Your broker
tells you that you have an initial margin requirement of 50%, with
maintenance margin 35%.
i. How many shares can you shortsell? How much cash will there
be in the margin account?
ii. Suppose GameStop rises in value to $6 per share. What percent-
age margin do you have now?
iii. How high will GameStop have to rise before you will get a margin
call?
(b) Suppose you have purchased some GameStop shares on margin at $5
per share. You ask your broker to put in a limit sell order at $7, and
a stop loss order at $4.50.
i. What will happen if the stock price falls to $4.50?
ii. What will happen if the stock price rises to $7?
iii. Now suppose you had instead short-sold your GameStop shares
(as in the first part of the question). What instructions might
you give to your broker to minimise your losses and lock in your
gains?
(c) It is more difficult to maintain a short position than a long position.
True or false? Explain your answer.
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Follow-up Question
Is it more difficult to maintain a short position than a long position.
True or false? Explain your answer.
Solution
by Bartleby ExpertFollow-up Question
What about for these?
(b) Suppose you have purchased some GameStop shares on margin at $5
per share. You ask your broker to put in a limit sell order at $7, and
a stop loss order at $4.50.
i. What will happen if the stock price falls to $4.50?
ii. What will happen if the stock price rises to $7?
iii. Now suppose you had instead short-sold your GameStop shares
(as in the first part of the question). What instructions might
you give to your broker to minimise your losses and lock in your
gains?
Solution
by Bartleby ExpertKnowledge Booster
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