Question

A customer buys 100 shares of XYZ at $60 in a margin account regular way settlement. Two days after the trade, XYZ has dropped to $55. The customer will receive a margin call for:

Answer 1

50% of Original Purchase price = 0.50 x $6000= $3000

Step-by-step explanation:

The customer buys 100 shares at $60 = $60 x 100 = $6000

Since, it a margin account, the margin requirement for the call for this initial purchase will be 50% of the original purchase price

= 50% of $6000 = $3000

Although XYZ shares dropped two days later from $60 to $55 dollars. The initial margin requirement will not be affected by the drop or reduction in share price and hence, it will not affect the value of the margin call.

However, if the drop continues, then the alternative is to generate a call for "maintenance margin'' not the initial margin.