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22 August, 15:51

Shares of RossCorp stock are selling for $45 per share. Brokerage commissions are 2% for purchases and 2% for sales. The interest rate on margin debt is 6.25% per year. The maintenance margin is 30

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  1. 22 August, 18:18
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    The price at which a margin call would be received is $28.929.

    Explanation:

    The stated question does not contain complete information. The remaining information is as follows.

    Assume that you purchase 150 shares of RossCorp stock at $45 each by making a margin deposit of 55 percent. At what price would you receive a margin call?

    The price is calculated using the formula for maintenance margin as follows.

    Maintenance margin = Equity in account / Value of stock

    Equity in account = (Shares purchased x Call price) - (Shares purchased x Remaining ratio x Sale price)

    Equity in account = (150 x P) - (150 x 0.45 x 45)

    = 150P - 3037.5

    Value of stock = Shares purchased x Call price

    = 150P

    Inserting these values into the formula for maintenance margin:

    0.3 = (150P - 3037.5) / 150P

    45P = 150P - 3037.5

    105P = 3037.5

    P = 28.929

    Hence, the price at which a margin call would be received is $28.929.
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