Question

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 maintenance margin is 35%?

Answer 1

To calculate the stock price at which you would receive a margin call, you need to consider the initial margin and maintenance margin percentages. In this case, the stock price would need to reach $94.29 for a margin call to be triggered.

Step-by-step explanation:

To calculate the stock price at which you would receive a margin call, you need to consider the initial margin and maintenance margin percentages. The initial margin is 60% and the maintenance margin is 35%.

First, determine the value of the initial margin by multiplying the number of shares sold short (300) by the selling price per share ($55) and then multiplying that by the initial margin percentage (60%). This will give you the initial margin value.

Next, calculate the price at which you would receive a margin call by dividing the initial margin value by the number of shares sold short. Finally, divide that result by the maintenance margin percentage to get the stock price.

In this case:

Initial margin value = 300 * $55 * 0.60 = $9,900

Margin call price = $9,900 / 300 = $33

Stock price for margin call = $33 / 0.35 = $94.29