# Short and Margin

Topics: Short, Margin, Futures contract Pages: 2 (499 words) Published: February 8, 2014
Lecture 3
1. Assume you purchased 700 shares of XYZ common stock on margin at \$50 per share from your broker. If the initial margin is 65%, how much did you borrow from the broker, what is the margin? 2. You purchase 100 shares at \$60 per share and margin = 50%. Suppose stock rises to \$80/sh (increase of 33%). What is your return? Suppose stock drops to \$40/sh (decrease of 33%). What is your return? 3. Investor opens a brokerage account and purchases 300 shares of XYZ at \$40 per share. She borrows \$4,000 from her broker to help pay for the purchase. The interest rate on the loan is 8%. a. What is the margin in Investors account when she first purchases the stock? b. If the share price falls to \$30 per share by the end of the year, what is the remaining margin in her account?

c. What is the rate of return on her investment?
4. Suppose you buy 1000 shares of XYZ at \$70. You make full use of the initial margin, which is 50%. The maintenance margin is 40%. If the stock price drops to \$60, will you receive a margin call? How about 55\$? 5. You sell 100 short shares of stock at \$60 per share. Initial Margin is 50%. What is your return if the price falls to \$50/sh next period? What if it rises to \$70? 6. Investor opened an account to short-sell 1,000 shares of XYZ at \$40 per share. The initial margin requirement was 50%. (The margin account pays no interest.) A year later, the price of XYZ has risen from \$40 to \$50, and the stock has paid a dividend of \$2 per share. a. What is the remaining margin in the account?

b. What is the margin on the short position?
c. If the maintenance margin requirement is 30%, will Investor receive a margin call?
d. What is the rate of return on the investment?
7. Investor opened an account to short-sell 1,000 shares of XYZ at \$35 per share. The initial margin requirement was 50%. The margin account pays interest at 4%. A year later, the price of XYZ has dropped from \$35 to \$30, and the stock has paid a dividend of \$1 per share. What...