Question

Ben purchased 200 shares of stock at $38 using 50% margin account. Her maintenance margin is 40%. Jessica has no other securities in her account. The price of the stock falls to $25 per share. Will she receive a margin call?

Answer 1

We calculate the margin call price using the formula below:
Margin call price=Initial purchase price*[(1-initial margin)/(1-maintenance margin)]

In the question, it is given that the account used is a 50% margin account. So, initial margin requirement is 50%.
Maintenance margin is 40%
Initial purchase price of the shares=$38

Margin call price=$38*(1-50%)/(1-40%)
=$38*0.5/0.6
=$38*0.83333
=$31.66654

A margin call is triggered at a price below $31.66654. As the price of the stock falls to $25 per share, she will receive a margin call.