Question

You purchased 200 shares of ABC common stock on margin at $50 per share. Assume the initial margin is 50% and the maintenance margin is 30%. You will get a margin call if the stock drops below ________. (Assume the stock pays no dividends, and ignore interest on the margin loan.)
$28.95
$35.71
$30.77
$26.55

Answer 1

Answer:

get margin call if stock drop below $35.71

Explanation:

given data

share = 200

margin = $50 per share

initial margin = 50 %

maintenance margin = 30%

to find out

margin call if the stock drops below

solution

we know equity is = 200P - 5000

and here P is margin call if stock drop

margin is express as

margin = $\frac{equity}{share}$ = maintenance margin

$\frac{200P - 5000}{200P}$ = 0.30

200P - 5000 = 60P

P = $\frac{5000}{140}$

P = 35.71

so get margin call if stock drop below $35.71