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Assume you want to purchase 100 shares at $40 per share at a time when the initial margin requirement is 70%. Because 70% of the
Assume you want to purchase 100 shares at $40 per share at a time when the initial margin requirement is 70%. Because 70% of the transaction must be finance with equity, the 30% balance can be financed with a margin loan. So, how much will you borrow? What happens to the margin as the value of the security changes to $65/share? What happens if the price of the stock drops to $30/share? Finally, by how much would the price of the stock have to decrease for the investor to receive a margin call (note that the maintenance margin on equity securities is 25%)?
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