risk management

If you are a trader making use of leverage to trade, it is very important that you risk manage your trade very carefully as you are trading with borrowed funds. You need to ensure that you hold sufficient cash in case your broker informs you of their intention to recall the loan, i.e. to return all borrowed funds.

Assume that you are given one trading day to raise the cash for the loan amount.

If you are unable to pay the full loan amount in cash, the broker will unwind your trade and use the proceedings to pay for the loan. If the proceeding is not enough to pay off the loan, you are required to top up the difference with cash. Therefore, you need to hold a minimum amount of readilyavailablecashtotopupthisdifference,ifyoudonotwanttobeservedwithabankruptcy order by your broker. Your broker has offered you a $1,000,000 interest-free loan and you used the loan to execute trades in $300,000 of Microsoft (MSFT), $200,000 of Goldman Sachs (GS) and $500,000 of Lending Club (LC) stocks on 29-Nov-2019 at the following prices,

1) Calculate and appraise the amount of cash that you need to fork out from your pocket, in Cases A and B, if your dealer decides to recall the loan when the hypothetical stock prices of the three stocks are given as follows respectively:

2) Hence, making use of the historical stock prices, suggest how you would appraise the amountofcashyoushouldholdtomanagethiscashshortfallfor99%ofthecases.Explain your methodology and the resulting amount of cash clearly. Document and explain any assumptions you have made in your evaluation.

Please quote cites and strictly follow APA formatting and style guidelines.