Question

ABC Corporation is a start-up company that went public in January 2024. Its IPO was initially priced at £50 per share, but by March 2024 its price reached £70 per share. Assume you have £10,000 to invest and the initial margin requirement is 50% of total funds. You decide to buy on margin at the current price of £70 per share. The maintenance margin call is set at 30%.Question: After the short sale, the share price rises to £85 per share. Compute your new equity value and determine whether you will receive a margin call. I need process thank

74

likes
368 views

Answer to a math question ABC Corporation is a start-up company that went public in January 2024. Its IPO was initially priced at £50 per share, but by March 2024 its price reached £70 per share. Assume you have £10,000 to invest and the initial margin requirement is 50% of total funds. You decide to buy on margin at the current price of £70 per share. The maintenance margin call is set at 30%.Question: After the short sale, the share price rises to £85 per share. Compute your new equity value and determine whether you will receive a margin call. I need process thank

Expert avatar
Frederik
4.6
101 Answers
Given:
Initial price per share = £70
Initial margin requirement = 50%
Maintenance margin requirement = 30%
Initial investment = £10,000

1. Calculate the number of shares purchased:
Total funds available = Initial investment/(Initial margin requirement) = £10,000 / 0.5 = £20,000
Number of shares purchased = Total funds available / Share price = £20,000 / £70 ≈ 285.71 shares (rounded to 2 decimal places)

2. Calculate the initial equity value:
Equity value = Total funds available - Loan = Total funds available - (Total funds available * Initial margin requirement) = £20,000 - £10,000 = £10,000

3. Determine the new total value after the share price rises to £85:
New total value = Number of shares * New share price = 285.71 * £85 ≈ £24,285.35

4. Calculate the new equity value:
New equity value = New total value - Loan = New total value - (Total funds available * Initial margin requirement) = £24,285.35 - £10,000 ≈ £14,285.35

5. Determine if there will be a margin call:
To determine if there is a margin call, we compare the new equity value with the maintenance margin requirement. If the new equity value is less than 30% of the new total value, a margin call will occur.

New equity percentage = (New total value - Loan) / New total value * 100
New equity percentage = £14,285.35 / £24,285.35 * 100 ≈ 58.78%

Since the new equity value percentage is above the maintenance margin requirement of 30%, there will be no margin call.

Therefore, \boxed{\text{New equity value is £14,285.35 and there will be no margin call.}}

Frequently asked questions (FAQs)
What is the SAS congruence rule for triangles?
+
What is the value of (3^4 • 3^-2) + (5^-3)^2 - (2^2 • 2^-6) using exponent rules?
+
Math Question: What is the smallest positive integer solution to the equation x^n + y^n = z^n, where n > 2 as per Fermat's Theorem?
+
New questions in Mathematics
The gross domestic product the gdp for the United States in 2017 was approximately $2.05x10^3. If you wrote this number in standard notation , it would be 205 followed by how many zeros
3x+2/2x-1 + 3+x/2x-1 - 3x-2/2x-1
2.5 / 21.85
"If three wolves catch three rabbits in three hours, how many wolves would it take to catch a hundred rabbits in a hundred hours?" The answer is the number of response units.
To celebrate the five-year anniversary of a consultancy specializing in information technology, the administrator decided to draw 3 different qualification courses among its 10 employees. Considering that the same employee cannot be drawn more than once, the total number of different ways of drawing among employees is:
2.3/-71.32
7/6-(-1/9)
Identify a pattern in the list of numbers.Then use this pattern to find the next number. 37,31,25,19,13
In a store, a person carries 14 kilos of rice and 28 kilos of flour. In what ratio are the kilos found? (Remember to simplify until you reach an irreducible fraction)
There were no defectives in a sample of 1 light bulb does this sample provide sufficient evidence that in the warehouse with millions of light bulbs fewer than 10% are defective?
(24, -7) is on the terminal arm of an angle in standard position. Determine the exact values of the primary trigonometric functions.
The Humane Society has asked for our help again this week. Currently they are charging $50 for an adoption fee. Unfortunately they just pulled this number out of the air and do not know why they are charging this amount. They would like to charge an amount that covers all the adoption costs – both the variable costs for adoptions as well as the fixed cost for the kennel portion of the Humane Shelter operations. We can help them by doing a breakeven analysis. During a client meeting we gathered these facts. There are 2 part-time employees that each earn $1000 per month. The utilities for the kennel area (water, electricity) are $200 per month. The average food cost for animals in the kennel is $800 per month. In addition, each animal that is adopted receives a rabies vaccination that costs $4 and is micro-chipped that costs $6. At the current cost of $50, how many animals must be adopted to break-even? What would break-even be at a $60 adoption fee? What would break-even be if the fee were lowered to $40? The newspaper has suggested that the Humane Society advertise to increase pet adoptions. The package that they have recommended costs $1000 for a very small ad run every day for a month. If the Humane Society does this extra advertising, how will it affect breakeven? Based on what you have learned about elasticity, what price do you recommend for the adoption fee?
(6²-14)÷11•(-3)
A company dedicated to the manufacture of shirts sells the units at a price of $40, the cost of each shirt is $24, a commission is paid for the sale of a unit of shirt of $2 and its fixed costs are $3500 Determine the marginal contribution
2x-5-x+2=5x-11
00 piece jigsaw puzzle. the completed puzzle is 10x10. each piech connects to at least 2 other pieces. i plan to assemble by taking pieces out of box one by one. if i've already taken out 2 pieces that dont directly connect, what is the minimum number of additional pieces that i need to draw to in order to guarentee that the original 2 pieces connect?
Identify the slope and y intercept y=11+2/3x
It costs a manufacturer $2,500 to purchase the tools to manufacture a certain homemade item. If the cost for materials and labor is 60¢ per item produced, and if the manufacturer can sell each item for 90¢, find how many items must he produce and sell to make a profit of $2000?
The domain of the function f(x)=x+7x2−144 is (−∞,), ( ,), and ( , ∞).
To apply a diagnostic test, in how many ways can 14 students be chosen out of 25? if the order does not matter