You purchased 1000 shares of CSCO common stock on margin at $19 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

To determine the stock price level at which a margin call would be issued, we use the formula:
Margin call price = (total loan amount - (maintenance margin * total value of stock)) / number of shares
Total value of stock = 1000 shares * $19 per share = $19,000
Total loan amount = 50% x $19,000 = $9,500
Maintenance margin = 30%
Number of shares = 1000
Margin call price = ($9,500 - (0.3 x $19,000)) / 1000 = $13.57
Therefore, if the stock price were to fall below $13.57, a margin call would be issued. Option D is the correct answer.

You Purchased 1000 Shares of CSCO Common Stock on Margin