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FIN253 Fundamentals Of Investment

Fundamentals Of InvestmentTU Board 2080

Assume a share of stock is selling at Rs. 200 per share. You buy 100 shares of stock on margin today. If the initial margin is 60 percent and maintenance margin is 40 percent, compute the margin…

2

Assume a share of stock is selling at Rs. 200 per share. You buy 100 shares of stock on margin today. If the initial margin is 60 percent and maintenance margin is 40 percent, compute the margin call price.

Answer

· Based on the official syllabus and past papers
Updated

The margin call price is calculated as follows:

  • The investor borrows Rs. 8,000 (40% of the Rs. 20,000 purchase).
  • To maintain a 40% equity position, the loan must not exceed 60% of the stock’s value.
  • Solving gives a new stock value of Rs. 13,333.33.
  • Dividing by 100 shares yields the margin call price of Rs. 133.33 per share.

Final margin call price: Rs. 133.33 per share.

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