You want to buy 50 shares of stock at $60 per share. You have a margin account.

A. You want to buy 50 shares of stock at $60 per share. You have a margin account. The initial margin is 60% and the maintenance margin is 35%. Calculate the maximum amount of cash you may borrow to be able to make this purchase.

B. You want to buy 50 shares of stock at $60 per share. You borrow $1,000 on margin. The initial margin is 60% and the maintenance margin is 35%. Calculate the price below which you will receive a margin call.

Expert Solution

1.
=Number of shares*Price per share*(1-initial margin %)
=50*60*(1-60%)
=1200.00

2.
=Amount borrowed/(number of shares-number of shares*maintenance margin)
=1000/(50-50*35%)
=30.76923077

jeff jeffy answered 2 years ago

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