(A)
Adequate Information:
In this situation, the current market price of the telecom share is $50 and the investor has decided to short sell 100 shares at the prevailing price.
To calculate:
The value of securities or cash that need to be kept in the trading account so as to satisfy the 50% requirement of the initial margin by the broker
Introduction:
Brokerage account refers to the arrangement underlying a licensed broker and an investor. The broker allows the investor to add funds in the account that he has opened with the firm and buy or sell, the investment in lieu of a commission or brokerage fees charged by broker on each order
(B)
To calculate:
The price of the stock that enables the investor to get margin call
Introduction:
Margin call comes into picture when the investor is required to deposit additional securities or money so that the margin in the investor's account stands equivalent to the minimum margin requirement.
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Check out a sample textbook solution- You are bearish on Telecom and decide to sell short 100 shares at the current market price of $50 per share.a. How much in cash or securities must you put into your brokerage account if the broker’s initial margin requirement is 50% of the value of the short position?b. How high can the price of the stock go before you get a margin call if the maintenance margin is 30% of the value of the short position?arrow_forwardYou are bearish on Telecom and decide to sell short 100 shares at the current market price of $36 per share. Required: a. How much in cash or securities must you put into your brokerage account if the broker's initial margin requirement is 50% of the value of the short position? Initial margin b. How high can the price of the stock go before you get a margin call if the maintenance margin is 30% of the value of the short position? (Round your answer to 2 decimal places.) Stock price reachesarrow_forwardYou are bullish on Telecom stock. The current market price is $50 per share, and you have $5,000 of your own to invest. You borrow an additional $5,000 from your broker and invest $10,000 in the stock. The maintenance margin is 30%.•How far does the price of Telecom stock have to fall for you to get a margin call?•If the price falls to $40 per share, will you receive a margin call?arrow_forward
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