How much cash does mhf need to invest

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Reference no: EM132001519

Question: Miracle Hedge Fund (MHF) buys 50 shares of Phantastic Corp. at $10 each. Its brokerage rm SuperBroke Brothers Inc. (SBB) sets a margin requirement of 20% and charges an interest rate of r = 6% on the loan for purchasing the shares.

(a) How much cash does MHF need to invest?

(b) Calculate the margin call of SBB if the price falls to $8.

(d) How is the return on cash inuenced by a change in the interest rate r? Does your answer depend on the size of the margin requirement? [Hint: For this sensitivity analysis use a derivative with respect to r and, then, m.]

Suppose that instead MHF short sells 20 shares of Awful Inc. at $20 each. Again, SBB now sets a margin requirement of 30%.

(e) How much cash does MHF need to invest?

(f) Calculate the margin call of SBB if the price increases to $25.

Reference no: EM132001519

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