Explanation:
The initial short proceeds were $45,000 (= 1,000 × $45), which resulted in an initial margin of $67,500 (= $45,000 × 150%). When the stock rose to $58, the new margin requirement was $72,500 (= $58,000 × 125%). This would generate a margin call for $5,000 (= $72,500 − $67,500).
(Book 3, Module 31.2, LO 31.h)
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Question 26
An equity trader decides to short sell 1,000 shares of XYZ, Inc., which traded at $45 per share when he initiated the short position. There is a 150% initial margin requirement and a 125% maintenance margin imposed. In the first two weeks of shorting, the stock price dropped to $37, but then a regulatory issue was unexpectedly resolved, and the stock jumped up to $58 per share. What is the margin call size that the trader should expect after this last price move?
A
$2,500.
B
$5,000.
C
$7,500.
D
$10,000.
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