1.Suppose you sell short 100 shares of IBM currently selling at $120/share. What
is your maximum possible loss? What is your maximum loss if you place a stop-
buy order at $128/share?
2. Suppose that British Petroleum (BP) is selling at $20 per share. You buy 1,000
shares using $15,000 of your own money and borrow the remaining amount on
margin from your brokerage company. The broker’s margin rate is 8%.
a) What is the percent increase in the net worth of your brokerage account if
the price of BP immediately changes to (i) $22; (ii) $20; (iii) $18?
b) Assume a year has passed. If the maintenance margin in 25%, how low
can BP’s price fall before you get a margin call from your broker?
c) It’s now a year later. Wat is the percent increase in the net worth of your
brokerage account if the price of BP changes to (i) $22; (ii) $20; (iii) $18?
3. If you place a stop order to sell 100 shares of stock at $55 when the current price
is $62, how much will you receive for each share if the price drops to $50? (a)
$50 (b) $55 (c) $54.87 (d) can’t tell from the information given