Question

You purchased 200 shares of ABC common stock on margin at $50 per share. Assume the initial margin is 50% and the maintenance margin is 30%. You will get a margin call if the stock drops below ________.

Answer 1

$35.71

Step-by-step explanation:

The computation of the stock drop price is shown below:

Maintenance margin = Number of shares purchased × price - loan amount ÷ Number of shares purchased × price

30% = 200 shares × price - $5,000 ÷ 200 shares × price

30% × 200 shares × price = 200 shares × price - $5,000

60 × price = 200 shares × price - $5,000

After solving this, the price would be $35.71

And, the loan amount is equal to

= Number of common stock shares purchased × per share value × initial margin

= 200 shares × $50 × 50%

= $5,000