Question

Suppose you sell short Apple.Inc which is currently trading at $100 per share. You put $20,000 as cash into your brokerage account with an initial margin of 50%. The maintenance margin is 25%. a. How many shares of Apple can you sell short? (8 pts) b. How far can the stock price increase before you get a margin call? (12 pts)

Answer 1

Answer:

A. 400 shares

B. 400 shares

Explanation:

You can calculate the amounts required in Requirement A and B by using their formulas given below.

No.of shares you can short = Cash Available/(Initial Margin*Price per share)

No.of shares you can short = 20,000/(50%*100)

No.of shares you can short = 400 shares

Price = Amount borrowed with interest/ No. of shares) / ( 1- Maintenance margin)

Price = (20,000/400)/(1-25%)

Price = 50/0.75

Price = 66.66