You short sell 800 shares of stock at $13 a share. The initial margin is 50% and the maintenance margin is 25%. The stock is currently selling for $11 a share. What is the amount of your account equity now?
A) $1,600
B) $5,200
C) $6,800
D) $8,800
E) $10,400

Question

Quizplus · Accepted Answer

The total value of the short sale is $10,400 (800 shares x $13 per share). Since the initial margin is 50%, you had to invest half of that amount, which is $5,200, as collateral for the short sale.

Now that the stock is selling for $11 a share, the total value of the short sale is $8,800 (800 shares x $11 per share). Your account equity is the difference between the collateral and the value of the short sale, which is $6,800 ($8,800 - $2,000 = $6,800).

Since the stock price is below the maintenance margin of 25%, you may receive a margin call to add more collateral to your account.

You Short Sell 800 Shares of Stock at $13 a Share