Suppose that you sell short 400 shares of Intel, currently selling for $50 per share, and give your broker $8,000 to establish your margin account.
a. If you earn no interest on the funds in your margin account, what will be your rate of return after 1 year if Intel stock is selling at: (i) $54; (ii) $50; (iii) $44? Assume that Intel pays no dividends. (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Round your answers to 2 decimal places. Omit the "%" sign in your response.)
(i) Rate of return %
(ii) Rate of return %
(iii) Rate of return %
b. If the maintenance margin is 25%, how high can Intel’s price rise before you get a margin call? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Margin call will be made at price $ or higher
c. Redo parts (a) and (b), but now assume that Intel also has paid a year-end dividend of $2 per share. The prices in part (a) should be interpreted as ex-dividend, that is, prices after the dividend has been paid. (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places. Omit the "%" & "$" signs in your response.)
(i) Rate of return %
(ii) Rate of return %
(iii) Rate of return %
Margin call will be made at price $ or higher