Question

2) Mrs Hanim wants to use the margin trading services offered by Kenanga Securities. The interest rate on margin loan will be 8% annually. Kenanga securities has set margin requirement of 70% and investor has to maintain the margin above 50% or otherwise there might be a margin call. Currently the market price of stock for WMF is RM3.50 and Mrs Hanim decided to buy 20 lots of them. The company had given out dividend RM0.50 per share a year before stock issuance. The commission fees, stamp duty and clearing fees totaled to 1.5% of the transaction value.

What is the price that Mrs. Hanim will receive a margin call.

Answer 1

		Lot	No. of Shares	Price	Amount in RM
b)	Cost of Investment	20	1000	3.5	70,000
	commission fees, stamp duty and clearing fees (1.5%)				1,050
					71,050
	Interest on Minimum required margin (calculated below)				2,800
	Cost of Investment				73,850
	Minimum Required Margin (50%)				35,000
	Interest @ 8% p.a.				2,800
	Margin Call would be activated if margin is utilised by more than 50%				35,000
	No. of shares purchased				20,000
	Price per share				1.75
	So if Price goes below 1.75 RM, margin call would get activated