As of March 9, 2021, the price of GameStop Corp. (ticker: GME) is $246.90 and its closing price on March 10, 2020 is $4.23. You believe GME is overvalued and decide to short-sell GME. You have $275,672 worth of Treasury Bills in your brokerage account that can be used as collateral. Your broker requires an initial margin of 50% and a maintenance margin of 44%. You must also set aside 100% of the cash proceeds as collateral. You decide to short as many shares as you can with the collateral you have. Pay special attention that you cannot purchase/sell/trade fractional shares. How much cushion (in dollars) do you have before you receive a margin call from your broker? That is, by how much the stock price could move in the "wrong" direction before you receive a margin call? Enter a number with two decimal points.
As of March 9, 2021, the price of GameStop Corp. (ticker: GME) is $246.90 and its closing price on March 10, 2020 is $4.23. You believe GME is overvalued and decide to short-sell GME. You have $275,672 worth of Treasury Bills in your brokerage account that can be used as collateral. Your broker requires an initial margin of 50% and a maintenance margin of 44%. You must also set aside 100% of the cash proceeds as collateral. You decide to short as many shares as you can with the collateral you have. Pay special attention that you cannot purchase/sell/trade fractional shares. How much cushion (in dollars) do you have before you receive a margin call from your broker? That is, by how much the stock price could move in the "wrong" direction before you receive a margin call? Enter a number with two decimal points.
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
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Transcribed Image Text:Question 14
As of March 9, 2021, the price of GameStop Corp. (ticker: GME) is $246.90 and its closing price on March 10, 2020 is $4.23. You believe GME is overvalued
and decide to short-sell GME. You have $275,672 worth of Treasury Bills in your brokerage account that can be used as collateral. Your broker requires an
initial margin of 50% and a maintenance margin of 44%. You must also set aside 100% of the cash proceeds as collateral. You decide to short as many shares
as you can with the collateral you have. Pay special attention that you cannot purchase/sell/trade fractional shares.
How much cushion (in dollars) do you have before you receive a margin call from your broker? That is, by how much the stock price could move in the
"wrong" direction before you receive a margin call? Enter a number with two decimal points.
Question 15
As of March 9, 2021, the price of GameStop Corp. (ticker: GME) is $246.90 and its closing price on March 10, 2020 is $4.23. Everyone you know believes
GME is overvalued and decides to short-sell GME. You on the other hand decide to be a contrarian with a levered position by buying on margin. You have
$263,322 of cash that can be used as margin and your broker requires an initial margin of 80% and a maintenance margin of 72%. Pay special attention that
you cannot purchase/sell/trade fractional shares.
How much cushion (in dollars) do you have before you receive a margin call from your broker? That is, by how much the stock price could move in the
"wrong" direction before you receive a margin call? Enter a number with two decimal points.
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