You purchase 500 shares at $170.30 per share. You borrow $51 090 from your broker to help finance the transaction. The interest rate on the loan is 3% for the month.
I know the initial margin by calculation is 40%.
The question I have is what is the value of the margin call if the price falls to $150 and the maintenance margin is 35%?
the answer says $2340.
How did they get that?
The original value of your equity is:
40% × $170.30 × 500 = $34,060
When the price drops to $150/share, your loss is:
($170.30 − $150.00) × 500 = $10,150
leaving you with equity of:
$34,060 − $10,150 = $23,910
Your required maintenance margin is:
35% × $150.00 × 500 = $26,250
Thus, you’re short by:
$26,250 − $23,910 = $2,340
Why don’t you also factor in the interest on the borrowed funds?
Did it take a month for the price to fall to $150?