You purchased 400 shares of XYZ common stock on margin at $20 per share. Assume the initial margin is 60% and the maintenance margin is 30%. You would get a margin call if the stock price is below . Assume the stock pays no dividend and ignore interest on margin.

$11.42

Explanation:

Firstly, we calculate the the buying cost of the shares. We were told that 40” shares were bought at a rate of $20 per one

The total amount spent buying is mathematically equal to = 400 * $20 = $8,000

Now since initial margin is 60%, the amount of personal money to used would be: 60% of $8,000 = 60/100 * 8,000 = $4,800. The amount borrowed will be 8.000 - 4800. = 5,200

Now we want to calculate the price at which there would be a margin call.

Mathematically;

Margin Call Price = Purchase Price x (1 - Initial margin) / (1 - Maintenance Margin) = 20 x (1 - 60%) / (1 - 30%) = $11.42

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