Question

The stock of Flop Industries is trading at $52. You feel the stock price will decline, so you short 450 shares at an initial margin of 70 percent. If the maintenance margin is 35 percent, at what share price will you receive a margin call? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Margin call price

Answer 1

Given,

Price per share = $ 52

No. of shares = 450 shares

Initial margin = 70%

Maintenance margin = 35% or 0.35

Solution :-

Proceeds from short - No. of shares & Price sale per shade = 450 shares X $52 = $23400 Initial deposit = Proceeds from short sale x initial margin - $23400 X 70% = $ 16380 Account value - Proceeds from short & Initial deposit Sale $23400 + $ 16380 = $39780 . Now, margin call Price - Account Value No. of sharest (1t maintenance margin) = $39780 450 X (1+0.35)

$39780 uso x 1.35 $39780 607.5 $ 65.48 the margin So call price is $65.48