Question

You short-sell 200 shares of Rock Creek Fly Fishing Co., now selling for $50 per share. You are required to post a 50% margin on the short sale. If your broker requires a 30% maintenance margin, at what price will you get a margin call? (Ignore interests and dividends)

a. $62.50
b. 57.69
c. 56.25
d. 37.50

Answer 1

b. 57.69

Step-by-step explanation:

Calculation for what price that you will get a margin call

First step

200 shares *$25 per share=$10,000

Second step

Based on the information given we are required to post a 50% margin on the short sale.

Now let find the 50% margin

50% margin =50%*$10,000

50% margin=$5,000

Hence,

$10,000+$5,000=$15,000

Third step

Based on the information given we were told that the broker requires a 30% maintenance margin.

.30=($10,000-200p)/200p

60p=$15,000-200p

260p= $15,000

Hence

$15,000/260

Price= $57.69

Therefore the price that you will get a margin call will be $57.69