Series 7 practice questionhardMargin Accounts — Margin Calls
A client shorts 500 shares at $40. The stock rises to $50. With a 30% maintenance requirement on short positions, what is the margin call amount?
- A$0 — no margin call
- B$3,000
- C$5,000
- D$2,500✓ Correct answer
Explanation
Why D — $2,500
The short sale generated $20,000 of proceeds and a $10,000 Reg T deposit, so the credit balance is $30,000. After the stock rises to $50, short market value is 500 x $50 = $25,000 and equity is $30,000 - $25,000 = $5,000. A 30% maintenance requirement calls for $7,500 of equity, so the maintenance call is $7,500 - $5,000 = $2,500.
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