Question

Old Economy Traders opened an account to short-sell 1,000 shares of Internet Dreams at $40 per share. The initial margin requirement was 50%. (The margin account pays no interest.) A year later, the price of Internet Dreams has risen from $40 to $50, and the stock has paid a dividend of $2 per share. a. What is the remaining margin in the account?

Answer 1

The remaining margin in the account is $8,000

Step-by-step explanation:

The computation of the remaining margin is shown below:

= (Number of shares × price per share × rate) - (number of shares × difference in price) - (number of shares × dividend per share)

= (1,000 × $40 × 50%) - (1,000 × $10) - (1,000 × 2)

= $20,000 - $10,000 - $2,000

= $8,000

The difference of price per share is come from

= New price per share - old price per share

= $50 - $40

= $10