Suppose you purchase 520 shares of stock at $81 per share with an initial cash investment...

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?

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Expert Solution

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

jeff jeffy answered 2 years ago

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