Suppose the maintenance margin in Example 3.2 is 40%. How far can the stock price fall before
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Suppose the maintenance margin in Example 3.2 is 40%. How far can the stock price fall before the investor gets a margin call?
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Suppose the maintenance margin is 30%. How far could the stock price fall before the investor would get a margin call? Let P be the price of the stock. The value of the investor's 100 shares is then 100P, and the equity in the account is 100P - $4,000. The percentage margin is (100P - $4,000)/100P. The price at which the percentage margin equals the maintenance margin of .3 is found by solving the equation 100P - 4,000 100P .3 which implies that P = $57.14. If the price of the stock were to fall below $57.14 per share, the investor would get a margin call. EXAMPLE 3.2 Maintenance Margin
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Related Book For
Essentials Of Investments
ISBN: 9780073368719
7th Edition
Authors: Zvi Bodie, Alex Kane, Alan J. Marcus
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