Question

Old Economy Traders opened an account to short-sell 1,000 shares of Internet Dreams from the previous question. The initial margin requirement was 50%. (The margin account pays no interest.) A year later, the price of Internet Dreams has risen from $40 to $50, and the stock has paid a dividend of $2 per share.

a. What is the remaining margin in the account?
b. If the maintenance margin requirement is 30%, will Old Economy receive a margin call?

Answer 1

a) Remaining margin in the account = (1000*40 *0.5)- [(50-40)*1000] -(1000*2)=$8000

b) Margin rate = equity/ liability = 8000/50000=0.16 = 16%

Old Economy Traders will receive a margin call

Step-by-step explanation: