Question

You have bought 500 shares of XYZ Corp. at $36.71 per share on 70% margin. The maintenance margin is 40%. Next day, the price of the stock drops to $17.30 per share. if a margin call is triggered, calculate the value of the deposit required to service the margin call. If no margin call is issued, enter $0.00 as your answer.

Thank you!

Answer 1

			A	B	C=A*B	D=70%*C	E=18355-12849	F=C-E	G=40%*C
		Day	Share Price	Number of Shares	Account Value	Initial Margin	Margin Loan	Account Equity	Maintenance Margin Required
		0	$36.71	500	$18,355	$12,849	$5,507	$12,849	$7,342
		1	$17.30	500	$8,650		$5,507	$3,144	$3,460
	Maintenance Margin required is more than Account Equity .
	Hence there will be margin Call
	Value of deposit required to service margin call	$317	(3460-3144)
	Margin Call will be when :
	Account Value =Margin Loan/(1-MMR)
	MMR=Minimum maintenance Margin=0.4
	Account Value =5507/(1-0.4)	$9,177.50
	Share Price =9177.50/500=	$18.36