Homework #1 - 2017.docx

# Homework #1 - 2017.docx - Homework#1 Complete all four...

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Homework #1 Complete all four problems below. The homework will be graded mostly based on completeness (refer to the syllabus for details). You may work with other students, but you must submit your own work. Please do not copy somebody’s homework as we will be checking for that. Problem 1 . Suppose that you sell short 500 shares of Intel, currently selling for \$40 per share, and you give your broker \$15,000 to establish your margin account. Assume Intel pays no dividends. a) If you earn no interest on the funds in your margin account, what will be your rate of return after one year if Intel stock is selling at (i) \$44; (ii) \$40; (iii) \$36? b) If the maintenance margin is 25%, how high can Intel’s price rise before you get a margin call? Problem 2 : You’ve borrowed \$20,000 on margin to buy shares in Disney, which is now selling at \$40 per share. Your account starts at the initial margin requirement of 50%. The maintenance margin is 35%. Two days later, the stock price falls to \$35 per share.

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• Fall '09
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