Assume you sold short 100 shares of common stock at $70 per share. The initial margin is 50%. What would be the maintenance margin if a margin call is made at a stock price of $85?
A) 40.5%
B) 20.5%
C) 35.5%
D) 23.5%

Question

Quizplus · Accepted Answer

The maintenance margin is calculated as (Equity / Market Value of Shorted Stock). Initially, you have $7,000 from the short sale and need $3,500 as initial margin (50% of $7,000). If the stock price rises to $85, the market value of the shorted stock is $8,500. Your equity is $7,000 (from short sale) + $3,500 (initial margin) - $8,500 (current market value) = $2,000. Maintenance margin = $2,000 / $8,500 = 23.5%.

Assume You Sold Short 100 Shares of Common Stock at $70