You purchased 100 shares of KO common stock on margin at $60 per share. Assume the initial margin is 50%, and the maintenance margin is 30%. Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest on margin.

Question

Quizplus · Accepted Answer

The formula to calculate the price at which you'd receive a margin call is: P = (Initial Price * (1 - Initial Margin)) / (1 - Maintenance Margin). Plugging in the values: P = ($60 * (1 - 0.5)) / (1 - 0.3) = $30 / 0.7 = $42.86.

You Purchased 100 Shares of KO Common Stock on Margin