Question

Assume you sold short 100 shares of common stock at $70 per share. The initial margin is 30%. What would be the maintenance margin if a margin call is made at a stock price of $85?

            A) 40.5%

            B)   20.5%

            C)   35.5%

            D) 23.5%

            E)   none of the above

    53.   You sold short 100 shares of common stock at $45 per share. The initial margin is 30%. At what stock price would you receive a margin call if the maintenance margin is 35%?

            A) $50

            B)   $65

            C)   $35

            D) $40

            E)   none of the above

Answer 1

The formula for marginal call price is as follows:

Margin Call Price = Initial Purchase Price ×          1-Initial Margin

                                                                          1-Maintenance Margin

1. Following is the given information:

Initial Purchase Price: $ 7000 (70×100)

Initial Margin              : 30%

Margin call price        : $ 8500 (85×100)

Maintenance Margin: ?

Now, putting the values in the formula, we get:

8500 = 7000 × 1-0.30

                          1-MM

MM = 42.35%

Therefore, the correct option is (E) none of the above.

2. Following is the given information:

Initial Purchase Price: $ 4500 (40×100)

Initial Margin              : 30%

Margin call price        : ?

Maintenance Margin: 35%

Now, putting the values in the formula, we get:

MC = 4500 × 1-0.30

                        1-0.35

MC = $ 4846 0r $ 48.46 per share

Therefore, the correct option is (E) none of the above.