Question

Last month you bought 100 shares of BIG on the margin at the price of $150/share...

Last month you bought 100 shares of BIG on the margin at the price of $150/share (50% initial margin, 35% maintenance margin). The Price of BIG is now $110/share. At the same time, you bought 100 shares of SML on the margin at $100/share (same margin requirements) and its price is now $90/share. What will your combined cash call be? Please show all work and do not use excel or a finance calculator.

Homework Answers

Answer #1

Initial Amount Deposited = Initial Margin Requirement = 50% of Investment = 50% of [(100*150)+(100*100)] = 50% of 25000 = $12500

Loss in Investment Value = (40*100)+(10*100) = 5000

Margin Balance = Initial Margin-Loss = 12500-5000 = $7500

New Investment Value = 25000-5000 = 20000

New Margin Requirement = New Investment Value*Maintenance Margin = 20000*35% = 7000.

As, New Margin requirement is LOWER than Margin Balance, There will NO CASH CALL i.e. Cash Call = 0

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