An investor buys $8,000 worth of a stock priced at $40 per share using 50% initial margin. The broker charges 6% on the margin loan and requires a 30% maintenance margin. In 1 year the investor has interest payable and gets a margin call. At the time of the margin call the stock's price must have been less than ________.

Question

Quizplus · Accepted Answer

At the time of purchases:
 11eaaae8_8b71_3c40_a4b8_71d4eafd1713_TB6474_00 After one year:
 11eaaae8_8b71_3c41_a4b8_b984bea8a198_TB6474_00 A margin call will occur if Equity/Market value = 0.30 or less
0.3 = (200P − 4,000 − 240)/200P
60P = 200P − 4,240
−140P = −4,240
P = $30.29

An Investor Buys $8,000 Worth of a Stock Priced at $40