You purchased 100 shares of KLM at $40 a share by depositing the minimum amount of margin.If the initial margin requirement was 50% and the maintenance margin requirement is 30%,you will get a margin call if KLM's price falls to
A)$12.
B)$20.
C)$29.
D)$32.

Question

Quizplus · Accepted Answer

A margin call occurs when the equity in the account falls below the maintenance margin requirement. Initially, you invest $2000 (50% of $4000). The maintenance margin is 30%, so the equity must be at least 30% of the current value of the shares. If the price falls to $29, the value of the shares is $2900, and the equity is $900 ($2900 - $2000 loan), which is 31% of $2900, just above the maintenance margin. If it falls below $29, the equity percentage will drop below 30%, triggering a margin call.

You Purchased 100 Shares of KLM at $40 a Share