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Will candy receive a margin call

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Reference no: EM133022199

Question - Through a margin account, Candy Cummings short sells 200 shares of Z stock for $50 per share. The initial margin requirement is 45% and the maintenance margin requirement is 20%.

Required -

a) If the Z stock subsequently rises in price to $58 per share, what is the actual margin in Candy's account? Will Candy receive a margin call?

b) If the Z stock subsequently falls in price to $42 per share, what is the actual margin in Candy's account? Is Candy's account restricted or unrestricted?

c) Calculate Candy's rate of return in parts (a) and (b), assuming that the short loan was flat but the initial margin deposit earned interest at a rate of 8%, and the prices of $58 and $42 were observed after one year during which the firm did not pay any dividends?

Reference no: EM133022199

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