Question

At the beginning of the day, you purchased 400 shares of stock for $36 a share. The initial margin requirement is 60 percent. Unless otherwise stated, assume that for purchasing the shares your borrowed amount is the maximum allowed borrowing. You are also given that the maintenance margin is 40 percent. At the end of the day, the closing price of stock is $23.04 a share. Will you receive a margin call? If yes, then assume that you took care of the margin call by bringing some additional funds ($X) from your checking account and using this amount as a security deposit. What is the amount of the additional fund, X? Prepare the balance sheet after you have taken care of the margin call.

Answer 1

Initial margin=400*36=14400*60%=8640.

Maintenance margin=14400*40%=5760.

MTM of day 1=400*(36-23.04)=400*12.96=5184.

Balance after MTM=8640-5184=3456.

Initial margin required = (400*23.04)*60%=5529.60

Yes i received margin call

Margin call=5529.60-3456=2073.60

The amount of additional funds of $2073.60

After taken care of margin call the balance sheet is reflected as the amount of $2073.60 is debited in assets side I.e security deposits (current assets) and in the same way the portion of equities and liabilities increased with the same amount .