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 minimum margin is 35%?

Question

Quizplus · Accepted Answer

To determine the stock price at which a margin call will be issued, we need to use the formula:

(price of stock when sold short - price of stock when margin call is issued) / price of stock when sold short = (initial margin - minimum margin) / initial margin

Substituting the given values, we get:

(55 - X) / 55 = (0.6 - 0.35) / 0.6
(55 - X) / 55 = 0.4167
55 - X = 22.0015
X = 55 - 22.0015
X = 32.9985

Therefore, a margin call would be issued if the stock price rises to $33 (approximately). Since this is not one of the answer choices, we choose the option that comes closest to this value, which is B: $65.

You Sold Short 300 Shares of Common Stock at $55