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Homework answers / question archive / Top Broker plc opens a brokerage account and short-sells 1,000 shares of XYZ stock at £20 per share
Top Broker plc opens a brokerage account and short-sells 1,000 shares of XYZ stock at £20 per share. The initial margin requirement is 50% and the maintenance margin is 30%. The price of the stock rises to £25 per share in the following year. The stock also pays dividend of £2 per share. Required: (a) What is the remaining margin in Top Broker's account at the end of the year? (5 marks) (b) Will Top Broker receive a margin call? (1 mark) (c) What is the company's return on investment? (5 marks) (d) What is the maximum price of the stock such that Top Broker has exactly 30% margin in year 1? (9 marks) (Total: 20 marks)
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