I do not understand the solution to this question An investor opens a margin account with an initial deposit of $5,000. He then purchases 300 shares of a stock at 30. His margin account has a maintenance margin requirement of 30%. Ignoring commission and interest, the price (in ) at which the investor receives a margin call is closest to: The solution calls for 300P - $4,000/300 P = .30 and solve for P Where does the $4,000 come from? I don’t see it anywhere. Does anyone know? Thanks,
i solved this a completely different way than the book (in a way that I think is easier to understand) It says he made a deposit of $5,000 and then purchased $9000 worth of stock, so his margin is 5000/9000 = 0.5555 then i just did the simple margin call formula 30(1-0.5555) / (1-.30) = 19.05 The 4000 is the difference between the amount of stock he purchased and the amount he actually deposited.
$4000 is the loan value. The stock purchase was $9000, he put in $5000 in margin (much more than the required minimum). Thus he borrows the rest, $4000.
I do them like this, its very easy for me to understand I guess it comes down to preference: (shares)§ - LOAN / (shares)§ = MAINT MGN really boils down to once the equity in the position is less than 30% you get a margin call, the only thing that can make a grown man driving a Bently cry.