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You decide to sell short 50 shares of Ford at $10 per share. The initial margin requirement is 50%. The maintenance margin is 40%. What is the minimum amount of cash that must be put into the brokerage account?

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Myth8

Answer: $250

Explanation:

Given,

Short sale = 50shares

Current market price = $10 per share

Initial Margin requirement = 50%

Maintenance margin requirement (MMR)= 40%

Total short sales proceeds= 50 x $10=$500

Since the initial margin requirement is 50% which is equal to 50% of $500 or $250. Therefore, $250 worth of stock or cash has to be deposited as the initial margin requirement.

Account value= Short sales proceeds + Initial Margin = $500 + $250= $750

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