Texts: You sell 500 shares of your company at $40 per share. You posted the minimum amount of margin based on your broker's 75% initial margin requirement. Exactly one year later, you close out your short position (i.e., you buy the shares back) when the stock is at $36 per share. Your company does not pay a dividend.
Answer the following questions, using formulas in the cells in column C to compute the answers.
1. What is your account value on the day you establish the short position?
2. What is your account equity the day you close out your short position?
3. Calculate the rate of return on your investment over the one year you held the position.
4. If your broker's maintenance margin requirement is 50%, at what company share price would you expect to get a margin call?
5. True or False: If your company paid a dividend during your short position, your return would decline.