Question

A trader at the Mothbaria Stock Exchange took a long position in the Payera Stock. He
purchased 100 shares of the stock at Tk.46.00 per share. The initial margin requirement was 40 percent while the maintenance margin is 30 percent of current market price. Determine the initial margin, maintenance margin, and the amount of replenishment if the price of Pyera stock changes to (a) Tk.38.00, (b) Tk.52.00, and © Tk.85.00

Answer 1

Intial margin = 40% × (46 × 100)

= 40 % × 4,600

= Tk 1,840

Maintenance margin = 30% × (100 × 46)

= 30% × 4,600

= Tk 1,380

A) when price is Tk 38

loss = 4,600 - 3,800

= Tk 800

Initial margin = 1,840 - 800 = Tk 1,040

As the initial margin goes below maintenance margin, we need to replenish the account upto inital margin i.e. we need to add Tk 800 to the leftover amount of Tk1,040 to take the total back to Tk 1,840 .

B) When price is Tk52

As the price of the stock goes up, we make a profit and the total amount = 5,200 - 4,600

= Tk 600

As we make a profit , 600 is added to the account which takes the account balance to Tk2,440 .

C) when price is Tk 85

As the price goes upto 85 from 52 , we make a profit = 8,500 - 5,200 = Tk 3,300

As we make a profit of 3,300 , it is again added to the account , which takes the total to Tk5,740 .