Question

"Long Margin Account Market Value: $210,000 Debit Balance: $100,000 If the debit balance in the account is reduced to $90,000, the market value where the account will be at minimum maintenance margin is?"

Answer 1

Answer:

25%

Explanation:

The formula to compute the equity in the long margin account is

long market value - debt = equity

Also we know that the account will be at maintenance if the equity is 25% of the long market value

Here 25% represents the equity so 75% would be debit

And, the drop in the market value is of

= $90,000 ÷ 0.75

= $120,000

So at this point, the equity is $30,000

Now the margin percentage is

= $30,000 ÷ $120,000

= 25%