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You have borrowed $45,000 on margin to buy shares in Tencent, which is now selling at $120 per share.  Your account starts at the initial margin requirement of 50%.  The maintenance margin is 30%.  Two days later, the stock price falls to $105 per share.a. What is the current margin and will you recieve a margin call?b. How low can the price of the shares fall before you recieve a margin call?

Question

You have borrowed $45,000 on margin to buy shares in Tencent, which is now selling at $120 per share.  Your account starts at the initial margin requirement of 50%.  The maintenance margin is 30%.  Two days later, the stock price falls to $105 per share.

a. What is the current margin and will you recieve a margin call?

b. How low can the price of the shares fall before you recieve a margin call?

check_circleAnswer
Step 1

a.

Calculation of Current Margin:

The current margin is 42.86%.

Excel Spreadsheet:

А
В
$120
1 Current Price
2 Change in Stock Price
3 Initial Margin Requirement
4 Maintenance Margin
Current Margin
$105
50%
30%
42.86%
help_outline

Image Transcriptionclose

А В $120 1 Current Price 2 Change in Stock Price 3 Initial Margin Requirement 4 Maintenance Margin Current Margin $105 50% 30% 42.86%

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Step 2

Excel Workings:

А
В
1 Current Price
2 Change in Stock Price
3 Initial Margin Requirement |0.5
4 Maintenance Margin
Current Margin
120
105
0.3
|=(B1*B3)-(B1-B2) B2
5
help_outline

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А В 1 Current Price 2 Change in Stock Price 3 Initial Margin Requirement |0.5 4 Maintenance Margin Current Margin 120 105 0.3 |=(B1*B3)-(B1-B2) B2 5

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Step 3

From the results obtained above, the maintenance margin is 30% and the current margin of 42.86% is higher than the maintenance margin.

...

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