You just bought 200 shares of a stock priced at $45 per share using 50% initial

Question

You just bought 200 shares of a stock priced at $45 per share using 50% initial margin. The broker charges 5% annual interest rate on the margin loan and requires a 30% maintenance margin.  One year later stock price dropped to 29 and you recieved margin call, to restore your margin to the initial margin level, how much would you need to deposit?

You sell short 100 shares of company A which are currently selling at $32 per share. You post the 50% margin required on the short sale. If your broker requires a 30% maintenance margin, at what stock price will you get a margin call?

You short-sell 200 shares of Tommy co. now selling for $30 per share. If you wish to limit your loss to $1,390, you should place a stop-buy order at what price?

You sold short 464 shares of common stock at $10 per share. The initial margin is 50%. You must put up how much your own equity?

You purchased 250 shares of common stock on margin for $35 per share. The initial margin is 65% and the stock pays no dividend. Your rate of return would be how much if you sell the stock at $25 per share. Ignore interest on margin.

You purchased 200 shares of ABC common stock on margin at $17 per share. Assume the initial margin is 50% and the maintenance margin is 35% and there is no interest on borrowed amount. You will get a margin call if the stock drops below what price?

Explanation / Answer

BORROWED AMOUNT = (200 * $45) * 50%

= $4500

INTEREST ON BORROWED AMOUNT

= $4500 * 5%

= $225

YEAR END VALUE OF ACCOUNT

= [(200 * $29) * 50%] - $225

= $2900 - $225

= $2675

INITIAL MARGIN TO MAINTAIN = $4500

AMOUNT NOW TO BE DEPOSITED

= $4500 - $2675

= $1825

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BORROWED AMOUNT

= (100 * $32) * 50%

= $3200 * 50%

= $1600

NOW SOLVE FOR P

0.30 = (100P - $1600) / 100P

30P = 100P - $1600

70P = $1600

P = $1600 / 70

P = $22.86

IF THE STOCK PRICE DROPS BELOW $22.86 I WILL GET A MARGIN CALL.

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TOTAL VALUE OF SHORT SELL

= 200 * $30

= $6000

MAXIMUM LIMIT OF MY LOSS

= $6000 + $1390

= $7390

STOP BUY ORDER PRICE

= $7390 / 200

= $36.95

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OWN EQUITY REQUIRED TO PUT UP

= (464 * $10) * 50%

= $4640 * 50%

= $2320

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OWN EQUITY TO PUT UP

= (250 * $35) * 65%

= $5687.5

SELL OF STOCK

= 250 * $25

= $6250

PROFIT ON SALE

= $6250 - $5687.5

= $562.5

RATE OF RETURN

= $562.5 / $5687.5

= 9.89%

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BORROWED AMOUNT

= (200 * $17) * 50%

= $3400 * 50%

= $1700

NOW SOLVE FOR P

0.35 = (200P - $1700) / 200P

70P = 200P - $1700

130P = $1700

P = $1700 / 130

P = $13.08

IF THE STOCK PRICE DROPS BELOW $13.08 I WILL GET A MARGIN CALL.

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