The price of Facebook stock is currently $43.56 and you decide to buy 180 shares on margin. The inital margin is 60%.

Attempt 2/3 for 10 pts.

Part 1

How much money will you borrow from the broker if you borrow as much as possible?

Correct

Assets		Liabilities & Equity
Value of shares (N*P)	7,841	Loan	3,136
		Equity	4,704
Total	7,841	Total	7,841

The value of stocks, and thus the assets in the account, are: A = N * P = 180 * 43.56 = 7,841

Since the initial margin is 60%, we have to contribute at least 60% of this amount to the account. Assuming that we borrow as much as possible, we contribute the minimum:

Contribution = 0.6 * 7,841 = 4,704 This is the initial dollar margin (or equity) in the account.

We borrow the remainder: Loan = A - E = 7,841 - 4,704 = 3,136

Attempt 1/3 for 10 pts.

Part 2

If the price falls to $39.1, what is the new percentage margin in the account?

Correct

Since the share price has fallen, the value of assets falls: A = N * P = 180 * 39.1 = 7,038

Since the loan amount is still the same, equity has to adjust: E = A - L = 7,038 - 3,136 = 3,902

Assets		Liabilities & Equity
Value of shares (N*P)	7,038	Loan	3,136
		Equity	3,902
Total	7,038	Total	7,038

Percentage margin=EquityValue of stock =3,9027,038=Percentage margin=EquityValue of stock =3,9027,038= 0.554

Attempt 1/3 for 10 pts.

Part 3

If the broker's maintenance margin is 50%, what is the minimum value the stock price can take before you are issued a margin call?