Question

You purchased 50 shares of PPI common stock on margin at $100 per share. Assume the initial margin is 60% and the maintenance margin is 30%. Below what stock price level by the year end would you get a margin call? The call loan rate is 2% per year. O a) $49.67 Ob) $58.29 O c) $44.97 O d) $52.86

Answer 1

As per the details given in the question
Correct Answer is option - B $58.29
IM = Initial margin
MM = Maintenance Margin
P0 = Price
If Call loan rate is not given in the question
Margin call was =$\frac{P0(1-IM)}{1-MM}$
Margin call = $\frac{100(1-0.6)}{1-0.3}$
Margin call was = 57.14
But, in the question Call loan rate is given
margin call = 57.14 + 2% of 57.14
MArgin call = $58.29

I hope this clear your doubt.

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