# CFA Mock Test - Question on Margin

Hi

Was going throught the CFA Mock test and found a solution i havent come across yet in schweser.

Pardon me for my ignorance if Schweser has it.

Here is the question. An investor opens a margin account with an initial deposit of \$5,000. He then purchases 300 shares of a stock at \$30 each on margin, and his account requires a maintenance margin of 30%. Ignoring commissions and interest, the price at which the investor will receive a margin call is closest to:

A. \$19.05. B. \$23.08. C. \$23.81 The solution is : equity / market value = 30% 5,000 + (p x 300) - (30 x 300) / p x 300 = 30% P = 19.05 I cant seem to get this. Is there another way to approach this ? Posting this as the CFA has had this in both the mocks (anyway they were consolidated from the individual test questions on their website), yet, rather be safe than sorry.

Investors equity in each share is \$16.66 (\$5,000/300 shares)

Investors initial Margin % is 55.53% (16.66/30)

Margin Call at (1-initial margin / 1- maintenance margin) = (1- 0.5553)/(1-0.3) = 63.52%

Margin Call at \$30 * 0.6352 = \$19.06

I just remember this formula:

Original price (1 - Initial margin) = Price for margin call (1 - maintenance margin)

I think this is the easiest way:

Your initial deposit is 5000. (This is what you have put down, your margin). The total amount spent was 30x300 = 9000.

So you’ve spent 9000, but you only put down 5000. (You borrowed 4000)

So how much did you put down as a percentage of what you spent: 5000/9000 = 0.55 (This is your initial margin %)

(1- Initial Margin / 1 - Maint Margin) x P

Well you know your initial margin now is 0.55

So it’s 1- that = (0.45/0.7) x orignal P = 30 = 19.047

It seems so easy after reading your explanation. Converting it in terms of percentages and applying the formula for the margin call, as basic as it could get. Thank you so much guys.