Chapter 3, Problem 19PS

Summary Introduction

(A)

Adequate Information:

In this situation, the current market price of the telecom share is $50 and the investor has decided to short sell 100 shares at the prevailing price.

To calculate:

The value of securities or cash that need to be kept in the trading account so as to satisfy the 50% requirement of the initial margin by the broker

Introduction:

Brokerage account refers to the arrangement underlying a licensed broker and an investor. The broker allows the investor to add funds in the account that he has opened with the firm and buy or sell, the investment in lieu of a commission or brokerage fees charged by broker on each order

Summary Introduction

(B)

To calculate:

The price of the stock that enables the investor to get margin call

Introduction:

Margin call comes into picture when the investor is required to deposit additional securities or money so that the margin in the investor's account stands equivalent to the minimum margin requirement.