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13 September, 13:22

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?

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  1. 13 September, 13:36
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    The remaining margin in the account is $8,000

    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
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