Question

You’ve borrowed $29,648 on margin to buy shares in Ixnay, which is now selling at $43.6...

You’ve borrowed $29,648 on margin to buy shares in Ixnay, which is now selling at $43.6 per share. You invest 1,360 shares. Your account starts at the initial margin requirement of 50%. The maintenance margin is 35%. Two days later, the stock price changes to $53 per share.

a. Will you receive a margin call? (Yes or No)

b. At what price will you receive a margin call?

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Answer #1

a)

Price has increased than the purchase price. Therefore, the Investment is in Profit. Therefore, Margin Call will NOT occur.

b)

Margin Loan = $29648

Value of Investment = Purchase Price*Quantity = 43.6*1360 = $59296

Margin Call will be triggered when Value of Investment falls below [Margin Loan/(1-Maintenance Margin)] = 29648/(1-0.35) = $45612.31

Therefore, Margin Call will be triggered when Price falls BELOW [Above Value of Investment/Number of Shares] = 45612.31/1360= $33.54

Therefore, Margin Call will be received AT $33.53

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