May thinks that Facebook is going to go down, so she decides tosell 270 shares...

May thinks that Facebook is going to go down, so she decides to sell 270 shares short at a price of $25 per share. May posts the 44% margin required. If May's broker requires a 20% maintenance margin, at what stock price will she get a margin call on this short trade?

Multiple Choice

$54.00

$25.00

$30.00

$20.00

Solutions

Expert Solution

The price is computed as follows:

= (Number of shares x Price per share + Number of shares x Price per share x Initial margin) / (Number of shares x (1 + Maintenance margin) )

= (270 x $ 25 + 270 x $ 25 x 44%) / (270 x (1 + 0.20) )

= $ 9,720 / 324

= $ 30.00

jeff jeffy answered 2 years ago

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