You purchased 800 shares of stock for $49.20 a share. The initial margin requirement is 65...

You purchased 800 shares of stock for $49.20 a share. The initial margin requirement is 65 percent and the maintenance margin is 35 percent. What is the lowest the stock price can go before you receive a margin call?

What is the lowest the stock price can go before you receive a margin call if both the initial and maintenance margins are 100%?

What is the lowest the stock price can go before you receive a margin call if both the initial and maintenance margins are 0%?

please show your work

Expert Solution

a) We are given the following information:

Initial Margin	65%
Maintenance Margin	35%
Purchase price of stock	$ 49.20

b) We are given the following information:

Initial Margin	100%
Maintenance Margin	100%
Purchase price of stock	$ 49.20

As the maintenance margin = 100% the denominator will become 0 and division by 0 is undefined. But financially it can be said that there is no margin call price, i.e. investor has not borrowed anything so there is no margin call price.

c)

a) We are given the following information:

Initial Margin	100%
Maintenance Margin	100%
Purchase price of stock	$ 49.20

Financially it is said the entire amount of 49.20 per share needs to be invested all the time as the entire money is borrowed.

jeff jeffy answered 2 years ago

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