Fred Copeland decides to invest $10,000 in Supreme Foods stock. He chooses to purchase as much stock as he can with a margin account that has a 50% initial margin requirement. The price drops suddenly to only 30% of its initial value. At this point, Mr. Copeland receives a margin call and, fearing that the stock is about to lose its remaining value, sells it.

How much of an additional payment must he make to his broker? Assume that there are no dividends or interest charged. (This problem illustrates the fact that with a margined pur- chase, you may lose more than the amount of your initial investment.)

Answer rating: 100% (QA)

When Fred Copeland invested 10000 the initial margin requirement was 50 That meant he could buy his ... View the full answer