You purchased 1,000 shares of common stock on margin at $30 per share.Assume the initial margin is 50%, and the stock pays no dividend.What would the maintenance margin be if a margin call is made at a stock price of $24? Ignore interest on margin.
A)0.33
B)0.375
C)0.20
D)0.23

Question

Quizplus · Accepted Answer

The maintenance margin is calculated when a margin call occurs. Here, you initially bought 1,000 shares at $30 each, totaling $30,000. With an initial margin of 50%, you borrowed $15,000 and used $15,000 of your own money. At a stock price of $24, the total value of the stock is now $24,000. The equity is the current value minus what you owe, which is $24,000 - $15,000 = $9,000. The maintenance margin is the equity ($9,000) divided by the total value of the stock ($24,000), which equals 0.375 or 37.5%.

You Purchased 1,000 Shares of Common Stock on Margin at $30