Question

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)

Answer 1

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