You sell short 200 shares of Doggie Treats Inc.which are currently selling at $25 per share.You post the 50% margin required on the short sale.If your broker requires a 30% maintenance margin,at what stock price will you get a margin call? (You earn no interest on the funds in your margin account and the firm does not pay any dividends)

Question

Quizplus · Accepted Answer

The correct answer is A because the maintenance margin is 30%, so the stock price at which you will get a margin call is $25 / 0.30 = $83.33. Since you sold short 200 shares, the margin call will occur when the stock price rises by $83.33 - $25 = $58.33. Therefore, the margin call will occur when the stock price reaches $25 + $58.33 = $83.33.

You Sell Short 200 Shares of Doggie Treats Inc