You purchased 500 shares of GLM stock today 80share on 45 ma

You purchased 500 shares of GLM stock today @$80/share on 45% margin. After you purchased the stock, the stock price drops to $55. Will a margin call be made? If the margin call is made, you plan to restore the margin to a level of 40% by selling some shares. How many shares will you need to sell? 4.

Solution

Margin Money deposited =500 *$80 *45% =$18000 Loss incurred after Droping Share price to $55 = 500 * ($80-$55) =$12500 Remaining Margin money after the loss =$18000-$12500 =$5500 Margin Money Required to hold shares after Price down (40%) =500*$55*40% =$11000 To hold the 500 shares , we need to maintain the margin Money at $11000. But actual margin money is $5500 $5500 is equal to the margin money for 250 shares. So to reach the remaining amount of margin money how many shares need to be sold is determined as follows Let assume \'X \' is the number of shares to be sold (250-x)*$55*40% =$55x 5500-22x =55x X =$5500/$77 =71.43 Shares To replace the margin money at 40% after the Price Droped , we need to sell 71.43 shares.