Assume that initial margin requirement is 60% of the total investment and a maintenance margin requirement is 30% of the total investment for long position and 35% of the total investment for the short position. Answer the following questions (a) & (b) based on this info, but independent of each other. (a.) You have purchased 400 shares of stock at $60 per share on margin and you sent a check to your broker for required margin. If the stock drops to $25, what will be your actual margin? At what price will you have a margin call? (b.) You have sold short 500 shares of investor's company's stock at $70 per share and you have deposited $21,000 in your account, with your broker. If price of this stock rises, at what stock price may you get margin call? Can you please show the formulas for each step and what they mean. Thank you.

Answer rating: 100% (QA)

a Initial margin 400 x 60 x 60 14400 Maintenance margin 400 x 60 x 30 7200 Loss due to decrea... View the full answer