Question

You have $28900 equity in a $100000 investment where the maintenance margin is 30%. You get...

You have $28900 equity in a $100000 investment where the maintenance margin is 30%. You get a margin call and decide to meet it by selling some of your shares to pay down the margin loan. What is the minimum amount of money's worth of shares that you need to sell to get your account legal again? Round to the nearest dollar

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Answer #1

Lets assume, Value of Investment Sold = x

Therefore, Value of Investment after sale will be 100000-x and Value of Equity will be 28900+x.

Value of x should be such that, 28900+x = 0.3[100000-x]

Therefore,

28900+x = 30000-0.3x

x+0.3x = 30000-28900

Therefore, Value of Investment to be sold = x = 1100/1.3= $846.15

Cross Verification: After Sale, Value of Investment = 100000-846.15 = $99153.85 & Value of Equity = 28900+846.15 = 29746.15. AND, 29746.15/99153.85 = 30%

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