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Old Economy Traders opened an account to brief market 1,000 shares of Net Dreams from the previous trouble. The initial margin need was 50%. (The margin account pays no interest.) A year later on, the price of Internet Dreams has climbed from $40 to$50, and the stock has paid a dividfinish of $2 per share.

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a. What is the remaining margin in the account"?

b. If the maintenance margin necessity is 30%, will Old Economy receive a margin call?

c. What is the rate of rerotate on the investment?


Brief Sale and also Margin

A short sale is a trading strategy that enables investors to acquire profit from reduced share price. Investors borrow stocks of a agency from their brokers and sell them. Later, the short-seller (investor) should purchase a share of the very same stocks to replace the shares that have been obtained. Here short-sellers have to rearea the stocks and also any kind of dividend these stocks have earned in the time of the duration.

(a)

When OET orders its brokers to offer 1000 shares of $40 each through brief selling, OET account is credited via $40,000. OET need to additionally have actually a margin need of 50% in its account. Margin is $20,000.

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Thus, full initial assets in its account is

*

Investments | ninth Edition
ISBN-13:9780073530703ISBN:0073530700Authors:Alex Kane,Alan J . Marcus,Zvi Bodie Rent | Buy
Alternating ISBN: 9780071289146, 9780077134501, 9780077316136, 9780077316143, 9780077432669, 9780077432683, 9780077470609, 9780077476380, 9780077502249, 9780077971311
Alternating ISBN: 9780071289146, 9780077134501, 9780077316136, 9780077316143, 9780077432669, 9780077432683, 9780077470609, 9780077476380, 9780077502249, 9780077971311
Investments (ninth Edition) Edit editionSolutions for Chapter 3Problem 7P: Old Economy Traders opened an account to short sell 1,000 shares of Web Dreams from the previous problem. The initial margin necessity was 50%. (The margin account pays no interemainder.) A year later on, the price of Web Dreams has actually increased from $40 to$50, and the stock has actually passist a dividfinish of $2 per share.a. What is the continuing to be margin in the account"?b. If the maintenance margin requirement is 30%, will Old Economy obtain a margin call?c. What is the rate of return on the investment?…
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Chapter 3, Problem 7P is resolved.
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