The stock of Flop Industries is trading at $45. You feel the stock price will de

Question

The stock of Flop Industries is trading at $45. You feel the stock price will decline, so you short 800 shares at an initial margin of 75 percent. If the maintenance margin is 25 percent, at what share price will you receive a margin call? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

The stock of Flop Industries is trading at $45. You feel the stock price will decline, so you short 800 shares at an initial margin of 75 percent. If the maintenance margin is 25 percent, at what share price will you receive a margin call? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Explanation / Answer

Hi,

Please find the correct answers as follows:

The price at which the investor recieves a margin call = share price*(1- initial margin)/(1- maintenence margin)

=45*(1-75%)/(1-25%)

=$15.00

Hence, $15.00 is the correct answer

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