Question

an investor short sell 700 shares of IOE incorporated, a security which is eligible for reduced...

an investor short sell 700 shares of IOE incorporated, a security which is eligible for reduced margin, at $22. it closes the day at $24. what is the additional margin required?

A. $6440

B. $9360

C. $14270

D. $20600

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Answer #1

Sol:

Number of shares short sold = 700

Short sell price = $22

Share closing price = $24

To determined additional margin required:

Proceeds from short sale = Number of shares short sold x Short sell price

Proceeds from short sale = 700 x $22 = $15,400

Security is eligible for reduced margin, therefore the total margin requirement to hold the position will be 130% of the closing share value.

Total margin required = 700 x $24 x 130% = $21,840

Additional margin required = Total margin required - Proceeds from short sale

Additional margin required = $21,840 - $15,400

Additional margin required = $6,440

Answer is A - $6,440

Therefore additional margin required will be $6,440

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