Question

You believe the price of Rose, Inc., stock is going to fall and you've decided to sell 1,400 shares short. If the current share price is $52, construct the equity account balance sheet for this trade. Assume the initial margin is 60 percent

Answer 1

Answer:

Assets

Proceeds from sale: $72,800

Initial margin deposit: $43,680

Total Assets: $116,480

Liabilities and Account Equity

Short Position: $72,800

Account Equity: $43,680

Total: $116,480

Explanation:

Given:

Shares = 1,400

Current Shares Price = $52

Initial Margin = 60%

Calculating Assets:

Proceeds from Sales = Shares * Current Price

Proceeds = 1,400 * $52

Proceeds = $72,800

Initial Margin Deposit =Proceeds * Initial Margin

Initial Margin Deposit = $72,800 * 60%

Initial Margin Deposit = $43,680

Total Assets = $43,680 + $72,800

Total Assets = $116,480

Calculating Liabilities:

Short Position = Shares * Current Price

Short Position = 1,400 * $52

Short Position = $72,800

Account Equity = Short Position * Initial Margin

Account Equity = $72,800 * 60%

Account Equity = $43,680

Total = $43,680 + $72,800

Total = $116,480