You purchased 200 shares of CNX common stock on margin at $51 per share. Assume the initial margin is 50% and the maintenance margin is 34%. You will get a margin call if the stock drops below ________.
Assume the stock pays no dividends, and you pay no interest on the margin loan. PLEASE SHOW WORK
HI,
Lets say the price =P when we get a margin call
So your equity = 200* share price - 50%*200*51
=200P - 5100
margin = (200P-5100)/200P =0.34
200P -5100 = 68P
P =38.64
So we get a margin call if stock drops below $38.64
Thanks
ANSWER :
Per share basis calculations :
Initial margin = 50%
Stock price = $51
So, Initial margin amount = 51*0.50 = 25.50 ($)
Maintenance margin = 34%
Let the stock price be P when margin call is effected.
So,
Maintenance margin amount = Initial margin amount - Loss
=> P * 0.34 = 25.50 - (51 - P)
=> P - 0.34 P = 25.50
=> 0.66 P = 25.50
=> P = 25.50 / 0.66
=> P = 38.64 ($)
Hence, margin call is received when stock price drops below $38.64 (ANSWER).
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