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You decide to buy 1,800 shares of stock at a price of $68 and an initial margin of 75 percent. What is the maximum percentage decline in the stock price before you will receive a margin call if the maintenance margin is 30 percent

Respuesta :

Answer:

Decline percentage = 64.29%

Explanation:

First find the margin call price = Initial price x  (1 - initial margin) / (1-maintenance margin)

Margin call price = 68 x ( 1- 75%) / (1 - 30%)

Margin call price = $24.29

The margin call that the investor will have if the price fall to $24.29.

Now find the percentage decline:

Percentage decline = (68 - 24.29) / 68

Percentage decline = 0.6429

Thus decline percentage = 64.29%