Question

an investor sells short 1,500 shares of dex at a price of $22, a security eligible for reduced margin. the next day, the shares close at a price of $25 and the investor is required to deposit additional margin. how much does the investor need to deposit?

Answer 1

When an investor sells short 1,500 shares at $22 and the price increases to $25, they need to deposit additional margin of $4,500 to cover the increased value of the shares.

Step-by-step explanation:

An investor who has sold short 1,500 shares of stock at a price of $22 is engaging in a financial transaction where they are betting that the stock price will go down. However, if the price increases to $25 the next day, the investor is in a position where they are losing money on the bet they made. To cover this short position, they are required to deposit additional margin. The additional margin needed is calculated by the increase in price ($3 per share) multiplied by the number of shares (1,500), which equates to $4,500. Before making such transactions, it is important for investors to understand how margin requirements work and the risks involved with short selling.