Question

On jan 1, you sold short 400 shares of microsoft at $30 per share. you post $7200 to the margin account. on april 1, you received a margin call on this trade. assume the minimum margin requirement is 25% and you receive a margin call. what amount must you top-up to restore to a 60% margin? a. $1880 b. $2400 c. $3360 d. $3840 e. None of the above

Answer 1

To calculate the amount you must top-up to restore a 60% margin, we need to follow these steps:

1. Calculate the initial short sale proceeds:
400 shares * $30 per share = $12,000

2. Determine the minimum margin requirement:
$12,000 * 25% = $3,000

3. Calculate the current equity in the trade:
Initial short sale proceeds - Margin call = Current equity
$12,000 - $7,200 = $4,800

4. Determine the desired equity at a 60% margin:
$12,000 * 60% = $7,200

5. Calculate the top-up amount:
Desired equity - Current equity = Top-up amount
$7,200 - $4,800 = $2,400

Therefore, the amount you must top-up to restore to a 60% margin is $2,400.

The correct answer is (b) $2,400.