You’ve borrowed $21,518 on margin to buy shares in Ixnay, which is now selling at $40.6 per share. You invest 1,060 shares. Your account starts at the initial margin requirement of 50%. The maintenance margin is 35%. Two days later, the stock price changes to $38 per share. a. Will you receive a margin call?

a. No, you will NOT receive a margin call.

b. The price at which you will receive the margin call is $31.23 per share.

Explanation:

Note: This question is not complete as the part b of the requirement is omitted. To complete the question, the omitted part b is therefore provided before answering the question as follows:

b. At what price will you receive the margin call?

The explanation of the answer is now provided as follows:

a. Will you receive a margin call?

Margin loan = $21,518

Total amount invested = Number shares purchased * Selling price per share when purchased = 1,060 * $40.60 = $43,036

Initial equity = Total amount invested - Margin loan = $43,036 - $21,518 = $21,518

Market value of the stock two days later = Number shares purchased * Selling price per share two days later = 1,060 * $38 = $40,280

New equity = Market value of the stock two days later - Margin loan = $40,280 - $21,518 = $18,762

Percentage margin = New equity / Market value of the stock two days later = $18,762 / $40,280 = 0.4658, or 46.58%

Since your percentage margin of 46.58% is lower than the new required maintenance margin of 35%, you will NOT receive a margin call.

b. At what price will you receive the margin call?

Price to receive the margin call = (Margin loan / (100% - Maintenance margin after two days)) / Number of shares purchased = ($21,518 / (100% - 35%)) / 1,060 = $31.23

Therefore, the price at which you will receive the margin call is $31.23 per share.

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