An investor buys 100 shares of Walmart at $45 per share on margin with an initia

Question

An investor buys 100 shares of Walmart at $45 per share on margin with an initial margin of 70 percent and a maintenance margin of 25% in two months the stock goes to $56 A- what is the actual margin of the stock when it's at $56? B- below what price will a margin call occur? An investor buys 100 shares of Walmart at $45 per share on margin with an initial margin of 70 percent and a maintenance margin of 25% in two months the stock goes to $56 A- what is the actual margin of the stock when it's at $56? B- below what price will a margin call occur? A- what is the actual margin of the stock when it's at $56? B- below what price will a margin call occur?

Explanation / Answer

A.

Stock = $56 * 100

= $5600

Loan = (1 - 0.7) * (100 * $45)

= $1350

Equity = $5600 - $1350

= $4250

Margin = $4250 / $5600

= 75.89%.

B.

Price = $1350 / (100 * (1 - 0.25))

= $18.

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