Jessica purchased 200 shares of stock at $38 using her 70% margin account. Her maintenance margin is 40%. Jessica has no other securities in her account. At what price will she receive a margin call?

Question

Quizplus · Accepted Answer

A margin call occurs when the equity in the account falls below the maintenance margin. Jessica's initial investment is $38 per share, and she used 70% margin, meaning she borrowed 30% of the purchase price. The maintenance margin is 40%, so the equity must be at least 40% of the current market value. The formula for the price at which a margin call occurs is: (Loan Amount) / (1 - Maintenance Margin). The loan amount is 30% of $38, which is $11.40. Therefore, the price at which a margin call occurs is $11.40 / (1 - 0.40) = $19.00.

Jessica Purchased 200 Shares of Stock at $38 Using Her