Question

Suppose that you sell short 200 shares of Xtel, currently selling for $125 per share, and give your broker $20,000 to establi
c. Redo parts (a) and (b), but now assume that Xtel also has paid a year-end dividend of $1 per share. The prices in part() s
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Answer #1

(a)
i) Rate of Return = (125-135)*200/20000 = -10% or (10%)
ii) Rate of return = (125-125)*200/20000 = 0%
iii) Rate of return = (125-120)*200/20000 = 5%

(b)
Margin Call
0.25 = (45,000 – 200 * P)/(200 * P)
P = $180

(c)

i) Rate of Return = ((125-135)*200-200)/20000 = -11% or (11%)
ii) Rate of return = ((125-125)*200-200)/20000 = -1% or (1%)
iii) Rate of return = ((125-120)*200-200)/20000 = 4%

(d)
Margin Call
0.25 = ((45,000-200) – 200 * P)/(200 * P)
P = $179.20

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