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What will be your rate of return after one year

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Reference no: EM132757378

Question: You are bearish on Galaxy stock and decide to short sell 10,000 shares at the current market price of $2.40 per share. The broker's initial margin requirement is 50% of the value of the short position.

i) What will be your rate of return after one year if the price of Galaxy stock falls by 10%? The stock is expected to pay a dividend of 9 cents per share.

ii) How high can the price of Galaxy stock go before you get a margin call if the maintenance margin is 30% of the value of the short position? (You may ignore the dividend payment.)

Reference no: EM132757378

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