Question

You’ve borrowed $28,512 on margin to buy shares in ixnay, which is now selling at $43.2 per share. you invest 1,320 shares. your account starts at the initial margin requirement of 50%. the maintenance margin is 35%. two days later, the stock price changes to $51 per share. required:

a. will you receive a margin call?
multiple choice
a) yes
b) no
b. at what price will you receive a margin call?

Answer 1

To determine if you will receive a margin call, calculate the equity in your margin account by subtracting the amount borrowed on margin from the total value of the investment. If the equity is greater than or equal to the maintenance margin requirement, you will not receive a margin call.

Step-by-step explanation:

To determine whether you will receive a margin call, we need to calculate the equity in your margin account. The equity is calculated by subtracting the amount borrowed on margin from the total value of the investment. In this case, you borrowed $28,512 on margin to buy 1,320 shares of ixnay at $43.2 per share, which gives a total investment value of $57,024. The equity in your margin account is then $57,024 - $28,512 = $28,512.

The maintenance margin requirement is 35%, so as long as the equity in your account is greater than or equal to 35% of the total value of the investment, you will not receive a margin call. The total value of the investment after the stock price changes to $51 per share is $67,320 (1,320 shares * $51 per share).

To calculate the new equity in your account, subtract the amount borrowed on margin from the new value of the investment: $67,320 - $28,512 = $38,808. Since $38,808 is greater than 35% of $67,320, which is $23,562, you will not receive a margin call.