Maintenance margin (for the @CFA Level 1 exam) walks you through the computation of the stock price level at which an investor will receive a margin call.
The way you explained this is exceptional!!! I was lost with the formula that was given in class that made you use the number of shares. Thank you so much for making it not as complex. Your explanation is greatly appreciated - GREAT job!!!
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Hello can you explain if maintenance margin is fix of certain percentage of initial margin. Then margin call will be below that maintenance margin. In given question stock price is 80 Therefore initial margin is 80×50% = 40$ But maintenance margin is certain %age of initial margin i.e 40×25% = 10$ Therfore when price reaches to 80-10 = 70 broker should call... Then why ptice reaches to 53.33 we will take. I completely understand the formula and explanation but why we calaculate by this method because mm is fixed of initial margin.
A 50% initial margin relates to the initial price of the stock ($80). Maintenance margin of 25% is all about the relationship between the margin account balance and the CURRENT stock price. If the stock price drops to 53.33, the loss of 26.67 will be deducted from the investor’s margin account, making its balance 13.33 (40.00 - 26.67). At this level it will equal 25% of the current stock price (13.33 divided by 53.33 is approximately 25%)
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