In: Finance
Suppose you purchase 520 shares of stock at $81 per share with an initial cash investment of $29,000. If your broker requires a maintenance margin of 35 percent, at what share price will you be subject to a margin call?
Margin call will be triggered when the account value falls below a certain level
It can be calculated using the formula - Margin Loan/(1-Maintenance margin)
The total value of shares purchased = 520 x 81 = 42,120
Cash Investment = 29,000
Margin loan given by the broker = 42,120 - 29,000 = 13,120
Account value = 13,120/(1-0.35) = 20,184.615
The trigger price will be = Account value/No. of shares = 20,184.615/520 = $38.82