The stock of Clapton Industries is selling at a price of $96 per share. You short 600 shares at an initial margin of 50 percent. If the maintenance margin is 30 percent, at what price will you receive a margin call?
A) $111.96
B) $116.19
C) $114.32
D) $110.77
E) $115.09

Question

Quizplus · Accepted Answer

First, let's calculate the total value of the short position:

Total value = 600 shares x $96/share = $57,600

Since the initial margin is 50%, you have deposited:

Initial margin = 50% x $57,600 = $28,800

Now let's calculate the price at which you will receive a margin call.

The formula for the price at which a margin call will occur is:

Margin call price = (total value - margin requirement) / number of shares

We know the number of shares (600) and the initial margin requirement ($28,800), but we still need to calculate the maintenance margin requirement.

Maintenance margin = 30% x $57,600 = $17,280

Now we can plug in the numbers:

Margin call price = ($57,600 - $17,280 - $28,800) / 600 = $110.77

Therefore, you will receive a margin call if the stock price rises to $110.77.

The Stock of Clapton Industries Is Selling at a Price