How much cash does mhf need to invest calculate the margin, Financial Management

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How much cash does mhf need to invest calculate the margin

Suppose Miracle Hedge Fund (MHF) buys 50 shares of Phantastic Corp. at $10 each. Its brokerage firm Super Broke Brothers Inc. (SBB) sets a margin requirement of 20% and charges an interest rate of r = 6% on the loan for purchasing the shares.

How much cash does MHF need to invest?

Calculate the margin call of SBB if the price falls to $8.

What is the return for MHF on the transaction after the price decline?

How is the return on cash influenced by a change in the interest rate r?

Does your answer depend on the size of the margin requirement?

Suppose that instead MHF short sells 20 shares of Awful Inc. at $20 each. Again, SBB now sets a margin requirement of 30%

How much cash does MHF need to invest? Calculate the margin call of SBB if the price increases to $25.

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Financial Management: How much cash does mhf need to invest calculate the margin

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