Reference no: EM133000465

Peter asks a broker to purchase 500 shares of ABC stock at market.

Using 50% margin. The broker has a 30% maintenance margin. The broker contacts Peter to inform him that the stock was purchased for $60 per share. If the stock falls to $35 per share, what is the amount of cash that must be placed into the margin account to achieve the maintenance margin?

My review of the question:

The value of the stock is now $35 x 500 shares = $17,500

The cost of the stock was $60 per share x 500 shares = 30,000

So I concluded that he margined 30,000 x 50% = 15,000

So here is where I am not quite following. Do you take the 15,000 and compare it to 17,500? That would give him a short fall of $2500 which is not the answer. The answer is $2,750