Question

suppose you want to short $5,000 worth of Stock AAA, which is currently selling for $12.50. In you want to use the broker's money for 30% and your money for the rest. If the price increases to $13.80, what is your new percentage margin?

Answer #1

Current selling price = $12.50

Investment amount = $5,000

Broker's money = 30%

= 5,000 x 30%

= $1,500

Hence, remaining 70% amount will be contributed by the investor

Investor's contribution = 5,000 x 70%

= $3,500

Hence, number of shares = 5,000/12.50

= 400

When share price increases to $13.80, total investment will be = 400 x 13.80

= $5,520

Broker's funds = $1,500

Hence, investor's contribution will be = 5,520 - 1,500

= $4,020

Hence,investor's new margin percentage = 4,020/5,520

= 72.83%

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