Suppose you short-sell 1000 shares of AOT stock at $30 per share. Assume further the initial margin requirement was 50%. a) What is the maximum amount you can lose? b) By the end of the year the stock pays dividends of $1 per share and the price of the stock surges to $35. The maintenance margin requirement is 30%. Will you receive a margin call from the broker? c) Find the rate of return on this investment.
Suppose you short-sell 1000 shares of AOT stock at $30 per share. Assume further the initial margin requirement was 50%. a) What is the maximum amount you can lose? b) By the end of the year the stock pays dividends of $1 per share and the price of the stock surges to $35. The maintenance margin requirement is 30%. Will you receive a margin call from the broker? c) Find the rate of return on this investment.
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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am. 103.
Transcribed Image Text:Suppose you short-sell 1000 shares of AOT stock at $30 per share. Assume further the initial margin
requirement was 50%. a) What is the maximum amount you can lose? b) By the end of the year the
stock pays dividends of $1 per share and the price of the stock surges to $35. The maintenance margin
requirement is 30%. Will you receive a margin call from the broker? c) Find the rate of return on this
investment.
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