Question
1. You've borrowed $20,000 on margin to buy shares in Sun Search, which is now selling at $40 per share. Your account starts at the
1. You've borrowed $20,000 on margin to buy shares in Sun Search, which is now selling at $40 per share. Your account starts at the initial margin requirement of 50%. The maintenance margin is 35%. Two days later, the stock prices falls to $35 per share.
a. Will you receive a margin call? (4 marks)
answer is
You will not receive a margin call. You borrowed $20,000 and with another $20,000 of your own equity you bought 1,000 shares of Sun Search at $40 per share. At $35 per share, the market value of the stock is $35,000, your equity is $15,000, and the percentage margin is: $15,000/$35,000 = 42.9% Your percentage margin exceeds the required maintenance margin.
i dont know how can i got 1000 shares ?
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