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 3.

award:

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1 point

You are bearish on Telecom and decide to sell short 240 shares at the current market price of $46 per share. |

Required: |

(a) | How much in cash or securities must you put into your brokerage account if the broker’s initial margin requirement is 50% of the value of the short position? (Omit the "$" sign in your response.) |

  Cash or securities to be put into brokerage account | $ 5,520    |

(b) | How high can the price of the stock go before you get a margin call if the maintenance margin is 10% of the value of the short position? (Round your answer to 2 decimal places. Omit the "$" sign in your response.) |

  Price of the stock | $ 46    or higher  |   |

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Worksheet | Difficulty: Intermediate |   |

You are bearish on Telecom and decide to sell short 240 shares at the current market price of $46 per share. |

Required: |

(a) | How much in cash or securities must you put into your brokerage account if the broker’s initial margin requirement is 50% of the value of the short position? (Omit the "$" sign in your response.) |

  Cash or securities to be put into brokerage account | $   |

(b) | How high can the price of the stock go before you get a margin call if the maintenance margin is 10% of the value of the short position? (Round your answer to 2 decimal places. Omit the "$" sign in your response.) |

  Price of the stock | $   or higher |   |

Explanation:

(a) |

  |

Initial margin is 50% of $11,040 or $5,520. |

(b) |

  |

Total assets are $16,560 ($11,040 from the sale of the stock and $5,520 put up for margin). Liabilities are 240P. Therefore, net worth is ($16,560 – 240P). A margin call will be issued when: |

$16,560 – 240P |   |

|   = .10     when P = $ 62.73 or higher |

 2.

award:

1 out of

1 point

Consider the following limit order book of a specialist. The last trade in the stock...