Question-Determining the Amount of the Margin Call

Assume that today, your client buys 1,000 shares of ABC Company on margin at a loan rate of 50%.

ABC's current share price is $25 per share.

(a)

How much money does the client have to deposit into their margin account in order to settle the purchase?

(b)

Let's assume 2 months later there is a decrease in the price of the shares to $22 per share

Now that the share price has fallen to $22 per share, what is the maximum amount that the dealer can lend your client?

c)

What is the amount of the margin call to the client? (Remember, the margin call is the additional money that the client must deposit to his account).

Note: the maximum loan from the broker is upto 50% of the current market value of the borrowed shares