State the Dollar Amount of Margin You Are Required to Keep

question 8

Multiple Choice

State the dollar amount of margin you are required to keep with a broker when selling two call options on Your Beloved Machine with strike price $105 when the current stock price of YBM is $104,the call price is $4,and each call is on 100 shares.The rule for margin (borrowing) requirement for option writing as set by the Federal Reserve Bank is as follows: for writers of call options on equity and "narrow-based index," the margin account initial requirement is 100 percent of option proceeds plus 20 percent of underlying security/index value less out-of-the-money amount,if any,to a minimum of option proceeds plus 10 percent of underlying security/index value for calls.

• A) $2,080
• B) $2,880
• C) $4,160
• D) $4,760
• E) None of these answers are correct.

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