You purchased 200 shares of ABC common stock on margin at $50 per share. Assume the initial margin is 50% and the maintenance margin is 30%. You will get a margin call if the stock drops below what price? (Assume the stock pays no dividends, and ignore interest on the margin loan.)

Margin call will be obtained if the stock price drops below $35.71

Explanation:

Here in this question, we start by calculating the maintenance margin

Mathematically;

Maintenance margin = Equity/market value

From the question, maintenance margin= 30%

= 30/100 = 0.3

Let the unknown price be P.

Thus, the market value of the 200 shares at price P is 200p

Hence;

0.3 = (200 * p - purchased stock value * initial margin)/200p

0.3 * 200p = 200p - 200(0.5 * 50)/200p

0.3 * 200p = 200p - 5000

60p = 200p -5000

140p = 5000

p = 5000/140

p = $35.71

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