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  • Chapter 03 Question 2 (Easy)

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    Daria Lang
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    The user borrowed $20,000 on margin to buy shares of Ixnay stock at $40 per share. With an initial margin of 50% and maintenance margin of 35%, the user would not receive a margin call unless the stock fell below $30 per share. At $35 per share, the value of the investment is still above the maintenance margin level so no call is triggered.

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    The user borrowed $20,000 on margin to buy shares of Ixnay stock at $40 per share. With an initial margin of 50% and maintenance margin of 35%, the user would not receive a margin call unless the stock fell below $30 per share. At $35 per share, the value of the investment is still above the maintenance margin level so no call is triggered.

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    © All Rights Reserved
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    14 views2 pages

    Chapter 03 Question 2 (Easy)

    Uploaded by

    Daria Lang
    The user borrowed $20,000 on margin to buy shares of Ixnay stock at $40 per share. With an initial margin of 50% and maintenance margin of 35%, the user would not receive a margin call unless the stock fell below $30 per share. At $35 per share, the value of the investment is still above the maintenance margin level so no call is triggered.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 2

    You’ve borrowed $20,000 on margin to buy shares in Ixnay, which i

    now selling at $40 per share. Your account starts at the initial marg
    requirement of 50%. The maintenance margin is 35%. Two days late
    the stock price falls to $35 per share.
    a. Will you receive a margin call?
    b. How low can the price of Ixnay shares fall before you receive a
    margin call?

    Borrowed funds
    Price per share
    Initial margin
    Maintenance margin
    New stock price

    Solution

    a. Total investment
    Shares purchased
    New value
    Equity value
    Margin

    b. Margin call price


    es in Ixnay, which is
    at the initial margin
    35%. Two days later,

    re you receive a

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