Reference no: EM132370236

1. On August 24, 2011, Steve Jobs, a visionary CEO of Apple, Inc. announced his resignation. You believe that Apple's remarkable comeback after 1997 is due to Steve's leadership. Therefore, you sold short 1,000 shares of Apple stock at a price of $360 per share the next day morning when the market opens. The initial margin requirement is 45% and the maintenance margin is 30%. Short sale proceeds yield 1.5% and the initial margin yields 2.5% (both rates are annual rates).

(a) Determine your short sale proceeds and the initial margin requirement

(b) What does Apple's stock price have to climb so that you'll receive a margin call?

(c) A week later, on August 31, 2011, Apple share rose to $386. What was the actual margin in your account?

(d) Suppose that you closed your account on August 31, 2011. What was the return on your investment? (Hint: the interest is 1/52 th of the annual interest rate)

2. On August 10, 2015, Google Inc. announced a new restructuring plane to form a parent holding company called Alphabet after the market closed. Therefore, you believed that Google stock was undervalued and bought 100 shares on margin at a price of $690 per share the next day. The initial margin requirement is 45% and the maintenance margin is 30%. The annual cost of the margin loan is 3%.

(a) Determine your initial margin requirement and the loan amount

(b) Two week later, Google's stock price declined to $612. What was the return on your investment?

(c) Google's stock price can fall to what level before you will receive a margin call.