Question

Sara believes that Rose, Inc., stock is going to fall and she has decided to sell 1,500 shares short. Assuming the initial margin is 65 percent and the current share price is $54, the short position and account equity values for this trade will be: a. $62,550 and $61,000 respectively b. None of these values c. $52,650 and $81,000 respectively d. $81,000 and $52,650 respectively

Answer 1

The short position value is $81,000 and the account equity value is $52,650.

Step-by-step explanation:

To calculate the short position and account equity values, we first need to determine the value of the short position and the initial margin. The short position is the number of shares sold short, which in this case is 1,500 shares. The value of the short position is the number of shares multiplied by the current share price, which is $54. So, the value of the short position is 1,500 shares * $54 = $81,000.

The initial margin is the percentage of the short position value that the investor must provide as collateral. In this case, the initial margin is 65 percent. To calculate the account equity, we subtract the value of the short position from the initial margin. The account equity is 65 percent of $81,000, which is 0.65 * $81,000 = $52,650.

Therefore, the short position value is $81,000 and the account equity value is $52,650.