# margin call - stocks (easy)

equation for a trigger price on a margin call - 10 seconds see if you can do this one IM % = .5 stock price = \$35 MM % = .8 40 seconds

3.5

[(1-.5)/1-.8)] x 35 = 3.5

87.5

soxboys21 Wrote: ------------------------------------------------------- > [(1-.5)/1-.8)] x 35 = 3.5 Oops, I calculated the math wrong… That equation does equal 87.5

answer is \$87.5 and getterdone gets the cookie formula is: Trigger = stock price * (1 - initial margin %) / (1 - MM) = \$35* (.5/.2) = 87.5

I love these. I actually get frazzled when I read “10 seconds…” everytime.

agreed, daj224 thanks for these questions

how come we have MM above the IM?

what am I missing here? you get a margin call when the stock hits \$87.5?

I don’t understand it either Dreary. I get \$21.86 how do you get margin called when the price goes up??

Exactly… margin calls cannot be < stock price… with the question above, the initial margin < mm which means that you get a call even when there has been no trading done on it! i think the question should be 0.5 and 0.2 (not 0.8!)

Dreary Wrote: ------------------------------------------------------- > what am I missing here? > you get a margin call when the stock hits \$87.5? yes, but I may have messed up with the question, since I made it up. nevertheless, the equaton holds trigger = Price of stock today * (1 - IM)( 1 - MM)

Please don’t try to a job at schweser or CFAI to write these questions :). We will be confused even more.

daj224 Wrote: ------------------------------------------------------- > Dreary Wrote: > -------------------------------------------------- > ----- > > what am I missing here? > > you get a margin call when the stock hits > \$87.5? > > > yes, but I may have messed up with the question, > since I made it up. > > nevertheless, the equaton holds > > trigger = Price of stock today * (1 - IM)( 1 - MM) yeah, good try making it up. next time you try again, remember to keep your maintenance margin lower than your initial margin.