Question

You purchased 100 shares of common stock on margin at $45 per share. Assume the initial margin is 50% and the stock pays no dividend. What would the maintenance margin be if a margin call is made at a stock price of $30? Ignore interest on margin. A) 0.33 B) 0.55 C) 0.43 D) 0.23 E)0.25

Answer 1

Answer:

E)0.25

Explanation:

The calculation of the maintenance margin is shown below:

Maintenance margin = Number of shares purchased × price - loan amount ÷  Number of shares purchased × price

= 100 shares × $30 - $2,250 ÷ 100 shares × $30

= $3,000 - $2,250 ÷ $3,000

= $750 ÷ $3,000

= 0.25

And, the loan amount equal to  

= Number of shares purchased × per share price × initial margin

= 100 shares × $45 × 50%

= $2,250