You sold short 300 shares of common stock at $55 per share. The initial margin is 60%. At what stock price would you receive a margin call if the maintenance margin is 35%?

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Quizplus · Accepted Answer

The initial value of the short sale is 300 shares * $55 = $16,500. The initial margin requirement means you must have 60% of this value in your account, which is $16,500 * 0.60 = $9,900. For a short sale, a margin call occurs when the equity in the account falls below the maintenance margin requirement. The equity in a short account is the initial margin plus the initial value of the short sale minus the current market value of the shorted stock. The formula to find the stock price at which a margin call occurs is: Initial Value of Short Sale - (Initial Margin Requirement * Initial Value of Short Sale) / (1 - Maintenance Margin Requirement) = Current Market Value of Shorted Stock. Plugging in the numbers: $16,500 - ($9,900) / (1 - 0.35) = Current Market Value. Solving for the current market value gives $25,230.77. Dividing this by the number of shares (300) gives a stock price of approximately $65.19.

You Sold Short 300 Shares of Common Stock at $55