You made a $10,000 stock purchase on margin (50%). You put $5,000 into your account initially to cover the purchase. Your stock has declined in value to $7,000 and you receive a margin call. How much cash must you put into your account as a result of the margin call?

Question

Quizplus · Accepted Answer

The maintenance margin requirement is typically 25%. After the stock declines to $7,000, the equity in the account is $2,000 ($7,000 - $5,000 borrowed). To meet the maintenance margin, you need 25% of $7,000, which is $1,750. You already have $2,000 in equity, so you don't need to add more to meet the maintenance margin. However, the question asks how much you must add as a result of the margin call, which seems to imply a different margin requirement or misunderstanding. Given the standard options, none directly apply to the typical maintenance margin scenario. Assuming a different margin requirement or a specific requirement from the broker that necessitates adding funds to avoid liquidation, without explicit details, the closest standard answer reflecting a need to add funds based on the given options and a potential misunderstanding of the margin call process would be $1,500, as it's the only option that suggests adding funds. However, this does not align with standard margin call calculations and should be clarified with the correct margin requirements.

You Made a $10,000 Stock Purchase on Margin (50%)