Question

Assume that you just short sold 300 shares of Spencer stock at $120 per share. The initial margin requirement (IMR) is 50 percent and the maintenance margin requirement (MMR) is 30 percent.

Answer 1

Solution :-

Here the Stock that short = 300 shares of $120 each = $36000

Initial Margin = 50%

Therefore Amount Deposited = $36000 * 50% = $18000

Maintenance Margin = 30% = $36000 * 30% = $10800 Means we need to invest more money if our net balance goes below $10800

Here the Share goes upward ($127 - $120) = $7 per share Means loss of 300 * $7 = $2100

which means the balance is $18000 - $2100 = $15900 which is over and above $10800

So there is no need of maintainance margin

Now After two Months the Position Closed at a loss of $2100

Now the Balance after two months = $15900

Therefore there is a negative rate of return as it is loss = ( [15900 - 18000] / 18000 ) * 100

( 2100 / 15000 ) * 100= -11.67% in two months

and -11.677 * 12 / 2 = - 69.99% annual