Aaron purchased 200 shares of a technology stock for $13.30 a share. The initial margin requirement on this stock is 75% and the maintenance margin is 50%. What is the lowest the stock price can go before he receives a margin call?
A)$4.43
B)$6.65
C)$6.80
D)$8.50
E)$9.50

Question

Quizplus · Accepted Answer

The lowest price before a margin call occurs can be calculated using the formula: $P = \frac{D}{N \times (1 - MM)}$, where $P$ is the price of the stock at the margin call, $D$ is the amount borrowed, $N$ is the number of shares, and $MM$ is the maintenance margin. Aaron's initial investment is $200 \times $13.30 = $2660$, and with a 75% margin requirement, he borrows 25% of this amount, which is $0.25 \times 2660 = $665$. Substituting these values into the formula gives $P = \frac{665}{200 \times (1 - 0.5)} = $6.65$.

Aaron Purchased 200 Shares of a Technology Stock for $13