Question

Assume you sold short 100 shares of common stock at $50 per share. The initial margin is 60%. What would be the maintenance margin if a margin call is made at a stock price of $60?

Answer 1

Answer:

Maintenance margin at $60=$\frac{\ 8000-\ 6000}{\ 6000} =0.333=33.3\%$

Explanation:

Given Data:

Number of shares=100 shares

Cost per share=$50

Initial margin=60%=0.6

Required:

The maintenance margin if a margin call is made at a stock price of $60=?

Solution:

Cost of shares=100*50=$5000

Cost with initial margin=$5000*0.6=$3000

Total cost of shares=$5000+$3000=$8000

Cost of shares at $60=100*60=$6000

Maintenance margin at $60=$\frac{Total\ cost\ of\ shares-Cost\ of\ shares\ at\ \ 60}{Cost\ of\ shares\ at\ \ 60}$

Maintenance margin at $60=$\frac{\ 8000-\ 6000}{\ 6000} =0.333=33.3\%$