Suppose you purchase 200 shares of Best Hat Corporation at $52 a share by making a margin deposit of 50 percent. If the maintenance margin is 30 percent, at what price will you receive a margin call?
A) $37.14
B) $37.95
C) $38.23
D) $38.76
E) $39.42

Question

Quizplus · Accepted Answer

To determine the price at which you'll receive a margin call, you first calculate the amount borrowed and the equity required at the maintenance margin level. You bought 200 shares at $52, totaling $10,400. With a 50% margin deposit, you borrowed $5,200. The maintenance margin is 30%, so the equation for the price at which a margin call occurs is: $5,200 / (1 - 0.30) = Equity needed. This simplifies to $5,200 / 0.70 = $7,428.57 as the total value needed. For 200 shares, the price per share for a margin call is $7,428.57 / 200 = $37.14.

Suppose You Purchase 200 Shares of Best Hat Corporation at $52