Question

*8 Assume an investor shorts 100 shares of a stock at $60 per share for a total stock value of $6,000 of stock on 50% margin and the maintenance margin is 20%. How much cash is in the investor’s account at the time of the short sale?

Group of answer choices

$7,200

$9,000

$3,000

$1,200

Answer 1

option (c) i.e. $3,000 is the correct answer.

Concept-

Initial margin (margin) is the additional amount required at the demat account at the time of purchase or sale of securities so as to cover MTM losses.

Maintenance margin is the limit, below which our initial margin balance should not fall. If in any day, initial margin falls below the maintenance margin level, we will have to update our account balance with orignal initial margin by paying in funds.

Solution-

Required margin in the Seller's account = Sales value * Initial margin percent

Required margin in the Seller's account = $6,000 * 50%

Required margin in the Seller's account = $3,000

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