You want to short 1,000 shares of Tesla stock which is currently selling for $52. The dealer offers you a short position with an initial margin of 50% with a maintenance margin of 15%. The continuously compounded, annual interest rate is 3.5%, and the lender offers a rebate rate of 0.5% (cont. comp., annual). At what price do you receive a margin call? If the lender deposits your rebates into your margin account, at what price do you receive a margin call?

You want to short 1,000 shares of Tesla stock which is currently selling for $52. The dealer offers you a short position with an initial margin of 50% with a maintenance margin of 15%. The continuously compounded, annual interest rate is 3.5%, and the lender offers a rebate rate of 0.5% (cont. comp., annual). At what price do you receive a margin call? If the lender deposits your rebates into your margin account, at what price do you receive 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

Chapter22: Providing And Obtaining Credit

Section: Chapter Questions

Problem 3P: Del Hawley, owner of Hawleys Hardware, is negotiating with First City Bank for a 1-year loan of...

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Del Hawley, owner of Hawleys Hardware, is negotiating with First City Bank for a 1-year loan of 50,000. First City has offered Hawley the alternatives listed here. Calculate the effective annual interest rate for each alternative. Which alternative has the lowest effective annual interest rate? a. A 12% annual rate on a simple interest loan, with no compensating balance required and interest due at the end of the year b. A 9% annual rate on a simple interest loan, with a 20% compensating balance required and interest due at the end of the year c. An 8.75% annual rate on a discounted loan, with a 15% compensating balance d. Interest figured as 8% of the 50,000 amount, payable at the end of the year, but with the loan amount repayable in monthly installments during the year
A writer sells 100 call options with strike $46 for $0.94 each and deposits these premiums in a bank. The calls mature in 30 days, and the bank's interest rate over those 30 days is 3%. At expiry the underlying asset of the call is worth $39 each. At expiry, the writer withdraws all cash from the bank, purchases the necessary amount of shares on the open market and completes the call contract. What is the writer's profit? Give your answer correct to two decimal places, and if the writer makes a loss include a minus sign.
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