4. (a) Suppose you decide to short sell some GameStop shares. Their cur- rent price is $5, and you have $5000 available to you. Your broker tells you that you have an initial margin requirement of 50%, with maintenance margin 35%. i. How many shares can you shortsell? How much cash will there be in the margin account? ii. Suppose GameStop rises in value to $6 per share. What percent- age margin do you have now? iii. How high will GameStop have to rise before you will get a margin call?
4. (a) Suppose you decide to short sell some GameStop shares. Their cur- rent price is $5, and you have $5000 available to you. Your broker tells you that you have an initial margin requirement of 50%, with maintenance margin 35%. i. How many shares can you shortsell? How much cash will there be in the margin account? ii. Suppose GameStop rises in value to $6 per share. What percent- age margin do you have now? iii. How high will GameStop have to rise before you will get a margin call?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter18: Initial Public Offerings, Investment Banking, And Capital Formation
Section: Chapter Questions
Problem 5P
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Is it more difficult to maintain a short position than a long position.
True or false? Explain your answer.
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Follow-up Question
What about for these?
(b) Suppose you have purchased some GameStop shares on margin at $5
per share. You ask your broker to put in a limit sell order at $7, and
a stop loss order at $4.50.
i. What will happen if the stock price falls to $4.50?
ii. What will happen if the stock price rises to $7?
iii. Now suppose you had instead short-sold your GameStop shares
(as in the first part of the question). What instructions might
you give to your broker to minimise your losses and lock in your
gains?
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