Question

# You purchased 200 shares of Facebook common stock on margin at \$210 per share. Assume the...

1. You purchased 200 shares of Facebook common stock on margin at \$210 per share. Assume the initial margin is 50% and the maintenance margin is 30%. Three days later, the stock price falls to \$190 per share.
1. Will you receive a margin call? (15 points)
2. Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest on margin. (15 points)

a] and b]

Initial margin = purchase price per share * number of shares * initial margin %

Initial margin = \$210 * 200 * 50% = \$21,000

Maintenance margin = purchase price per share * number of shares * maintenance margin %

Maintenance margin = \$210 * 200 * 30% = \$12,600

Price change that would lead to margin call = (initial margin - maintenance margin) / quantity of wheat per contract

Price change that would lead to margin call = (\$21,000 - \$12,600) / 200 = \$42

Stock price level at which margin call will be made = \$210 - \$42 = \$168

No, you will not receive a margin call

#### Earn Coins

Coins can be redeemed for fabulous gifts.