Marcia purchased 100 shares of Hyde Foods stock on margin at a price of $35 a share. The initial margin requirement is 65% and the maintenance margin is 35%. What is the lowest the stock price can go before Marcia receives a margin call?

Question

Quizplus · Accepted Answer

The lowest price before a margin call occurs can be calculated using the formula: $P = \frac{B}{(1 - M)}$, where $P$ is the price of the stock at the margin call, $B$ is the amount borrowed, and $M$ is the maintenance margin. Marcia's initial investment is 65% of the total value, so she borrows 35% of the total value. For 100 shares at $35 each, the total value is $3500, and Marcia borrows $1225 (35% of $3500). The maintenance margin is 35%, so plugging into the formula gives $P = \frac{1225}{(1 - 0.35)} = \frac{1225}{0.65} = $1884.62$ for 100 shares, or $18.85 per share.

Marcia Purchased 100 Shares of Hyde Foods Stock on Margin