Assume that you sell short 100 shares of Smart, Inc., at $50 per share at a time
ID: 2738833 • Letter: A
Question
Assume that you sell short 100 shares of Smart, Inc., at $50 per share at a time when the initial margin requirement is 50% and the maintenance margin on short sales is 30%. Use what you know about short selling to complete the “blanks” in the following table:
Item A B C Price per share 50 30 70 Proceeds from inital short sale 5000 n/a n/a Initial margin deposit 2500 n/a n/a Total deposit with broker 7500 7500 Current cost of buying back stock 5000 3000 Account equity 2500 4500 500 Actual margin 0.5 1.5 Maintenance margin position OK OKExplanation / Answer
Item A B C Price per share 50 30 70 Proceeds from inital short sale 5000 n/a n/a Initial margin deposit 2500 n/a n/a Total deposit with broker 7500 7500 7500 Current cost of buying back stock 5000 3000 7000 Account equity 2500 4500 500 Actual margin 0.5 1.5 0.071 Maintenance margin position OK OK NOT OK