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?

Question

Ayden Farmer

Business

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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Answers (1)

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Liberty · Answer 1

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