You purchase 200 shares of LPT Company at $100 per share using a 60% margin. The...

You purchase 200 shares of LPT Company at $100 per share using a 60% margin. The minimum initial margin is 50% and your maintenance margin is 25%. How low can the stock price fall before you receive a margin call?

Expert Solution

Margin loan = 200 shares * $ 100 * 60%

= $ 12,000

Account Value = (Margin Loan) / (1 – MMR)

= 12,000 / ( 1 - 0.25 )

= 12,000 / 0.75

= $ 16,000

Stock price can fell upto = 16,000 / 200

= $ 80 per share

jeff jeffy answered 2 years ago

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