Question 85 on afternoon CFA Mock exam understand, anywhere, afternoon, commission

jawz

I do not understand the solution to this question

An investor opens a margin account with an initial deposit of $5,000. He then purchases 300 shares of a stock at $30. His margin account has a maintenance margin requirement of 30%. Ignoring commission and interest, the price (in $) at which the investor receives a margin call is closest to:

The solution calls for 300P - $4,000/300 P = .30 and solve for P

Where does the $4,000 come from? I don't see it anywhere. Does anyone know?

Thanks,

dmar

I do them like this, its very easy for me to understand I guess it comes down to preference:

(shares)(p) - LOAN / (shares)(p) = MAINT MGN

really boils down to once the equity in the position is less than 30% you get a margin call, the only thing that can make a grown man driving a Bently cry.

nitoha

$4000 is the loan value. The stock purchase was $9000, he put in $5000 in margin (much more than the required minimum). Thus he borrows the rest, $4000.