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Short sale proceeds and the initial margin requirement

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On January 3, 2005, you short sold 5,000 shares of Ebay, a pioneer in internet person-to-person trading, at the price of $114.11 per share. The initial margin requirement is 65% and the maintenance margin is 30%. Short sale proceeds yield 2% and the initial margin yields 3% (both rates are annual rates).

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

(b) To what price must Ebay climb for you to receive a margin call?

(c) A month later, on February 3, 2005, Ebay fell to $77.22. What was the actual margin in your account? ((1) Suppose that you closed your account on February 3, 2005. What was the return on your investment?

Reference no: EM133117271

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