Question

2: Suppose you decided to buy 100 shares of AMZN at $2750 a share with maximum margin. The margin interest is 6%. In one year, the stock price will either be $3300 or $2300.

What is your gain/loss percentage with and without margin?

Let’s say the maintenance margin is 35%, what is the price that you will get a margin call?

Answer 1

Situation	Margin %	P0	P1	Cost	Current Value	Interest	Gain / (Loss) %
	A			B = P0 x 100	C = P1 x 100	D = (1 - A) x B x 6%	(C - B - D) / B
Max margin	100%	2,750	3,300	275,000	330,000	-	20%
Max margin	100%	2,750	2,300	275,000	230,000	-	-16%
Without margin	0%	2,750	3,300	275,000	330,000	16,500	14%
Without margin	0%	2,750	2,300	275,000	230,000	16,500	-22%

Margin call price = Buy price x (1 - initial margin) / (1 - maintenance margin) = 2,750 x (1 - 0%) / (1 - 35%) = 4,231