Answer-first summary for fast verification
Answer: $33.33.
### Explanation The correct answer is **B** ($33.33). Here's why: 1. **Initial Setup**: The trader buys the stock at $50 per share with $25 equity and a $25 margin loan (since $50 - $25 = $25). 2. **Margin Call Trigger**: A margin call occurs when the equity in the account falls below the maintenance margin requirement (25%). 3. **Calculation**: To find the share price (`P`) where equity equals 25% of the share price: - Equity per share = `P` - Margin loan ($25). - Maintenance margin requirement: 0.25 = (`P` - $25) / `P`. - Solving for `P`: `P` = $33.33. 4. **Verification**: At $33.33, equity is $33.33 - $25 = $8.33, which is 25% of $33.33. - **Option A ($12.50)**: Incorrect because equity would be negative ($12.50 - $25 = -$12.50), which is not possible for a margin call. - **Option C ($37.50)**: Incorrect because it assumes the maintenance margin is applied to the original price, not the current price.
Author: LeetQuiz Editorial Team
Ultimate access to all questions.
No comments yet.
A trader purchases a stock on margin with the following details: Purchase price per share is $50, equity per share is $25, and the maintenance margin requirement is 25%. If the share price falls, the highest price at which the trader will receive a margin call is closest to:
A
$12.50.
B
$33.33.
C
$37.50.