Question 6 (Margin trade 3pt ) Old Economy Traders opened an account to short sell...
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Question 6 (Margin trade 3pt ) Old Economy Traders opened an account to short sell 1,000 shares of Internet Dreams from the previous problem. After borrowing the shares of Internet Dreams, Old Economy Traders immediately sells the shares in the market at $60. After the sale of the shares, Old Economy Traders will not receive the dividend from the company. The initial margin requirement was 50%. (The margin account pays no interest.) A year later, the price of Internet Dreams has fallen from $60 to $50, and the stock has paid a dividend of $2 per share in between. 1. What is the remaining margin in the account? (2pt) 2 2. If the maintenance margin requirement is 30%, will Old Economy receive a margin call? (0.5pt) 3. What is the rate of return on the investment? (0.5pt)
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