Dée Trader opens a brokerage account, and purchases 390 shares of Internet Dream

Question

Dée Trader opens a brokerage account, and purchases 390 shares of Internet Dreams at $56 per share. She borrows $4,050 from her broker to help pay for the purchase. The interest rate on the loan is 5%. If the share price falls to $46 per share by the end of the year, what is the margin% in her account at that time? If the maintenance margin requirement is 34%, will she receive a margin call?

76.30%; Yes

58.81%; No

76.30%; No

81.46%; No

81.46%; Yes

76.30%; Yes

58.81%; No

76.30%; No

81.46%; No

81.46%; Yes

Explanation / Answer

Dee does the stock purchase for 390*56= $21,840.

The amount borrowed from the broker is $4,050. So, Dee’s margin in the purchase is $21,840-$4,050= $17,790.

If the share price falls to $46, then the value of the stock would also fall to: $46 * 39= $17,940.

The amount loaned to the broker, grows to: $4,050*(1+0.05)= $4,252.50.

The margin remaining in the account is:

=$17,940-$4,252.50/$17,940= 76.30%

The maintenance margin requirement is 34%. Therefore, she will not receive a margin call.

The answer is option C.

I hope that was helpful:)

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