the share originally borrowed Profit Initial price (Ending price dividend)   Note: A negative cash flow implies a cash outflow.     broker to sell short 1,000 shares. The broker borrows 1,000 shares either from another cus- tomers account or from another broker. The $100,000 cash proceeds from the short sale are credited to your account. Suppose the broker has a 50% margin requirement on short sales. This means that you must have other cash or securities in your account worth at least $50,000 that can serve as margin (that is, collateral) on the short sale. Let us suppose that you have $50,000 in Treasury bills. Your account with the broker after the short sale will then be:     Assets Liabilities and Owners Equity   Cash $100,000 Short position in IBM stock $100,000 T-bills $50,000 (1,000 shares owed) Equity $50,000     Your initial percentage margin is the ratio of the equity in the account, $50,000, to the cur- rent value of the shares you have borrowed and eventually must return, $100,000:   Percentage margin   Equity Value of stock owed   $50,000 $100,000   .50   Suppose you are right, and IBM stock falls to $70 per share. You can now close out your position at a profit. To cover the short sale, you buy 1,000 shares to replace the ones you borrowed. Because the shares now sell for $70, the purchase costs only $70,000. Because your account was credited for $100,000 when the shares were borrowed and sold, your profit is $30,000: The profit equals the decline in the share price times the number of shares sold short. On the other hand, if the price of IBM stock goes up while you are short, you lose money and may get a margin call from your broker. Notice that when buying on margin, you borrow a given number of dollars from your broker, so the amount of the loan is independent of the share price. In contrast, when short selling you borrow a given number of shares, which must be returned. Therefore, when the price of the shares changes, the value of the loan