Sun Lee purchased 1,500 shares of Franklin Metals stock for $16.80 a share. The stock was purchased with an initial margin of 65%. The maintenance margin is 30%. The stock is currently selling for $17.10 a share. What is the minimum dollar amount of equity that he must have in this stock today to avoid a margin call?

Question

Quizplus · Accepted Answer

The minimum dollar amount of equity needed to avoid a margin call can be calculated using the maintenance margin formula. Sun Lee's initial investment is 1,500 shares at $16.80 per share, totaling $25,200. With an initial margin of 65%, the amount borrowed is 35% of the total value, or $8,820. The current value of the stock is 1,500 shares at $17.10 per share, totaling $25,650. The maintenance margin is 30%, so the minimum equity required is 30% of the current value, which is $7,695.

Sun Lee Purchased 1,500 Shares of Franklin Metals Stock for $16.80