Question

You are bullish on Stock A. The current market price is $67 per share, and you wish to purchase 200 shares. Your plan is to borrow at the maximum possible amount allowed under the initial margin requirement of 50%. How far does the price of Telecom stock have to fall for you to get a margin call if the maintenance margin is 26%?

Answer 1

The Margin call will be made at $50.92

Step-by-step explanation:

Initial Margin per share = Price*Margin requirement

Initial Margin per share = $67*50%

Initial Margin per share = $33.50

Maintenance Margin per share = $67 * 26% = $17.42

Hence, the loss allowed = Initial Margin per share - Maintenance Margin per share = $33.50 - $17.42 = $16.08

Hence, the price of a share can fall up to $50.92 (i.e. $67-$16.08) before getting a margin call. Thus, the Margin call will be made at $50.92