I need help replying to a discussion post. Read your classmate’s post listed below and assume the market price of your classmates’ stock declines by 20%. In your post address the following:
Calculate and explain the margin call.
Explain the actions that the broker can take to meet the margin call.
AREE
Hi Class
Stock Market price Total price of a round lot
AAL $20.63 $2063
I chose the AAL stock which is the symbol representing the stock of American Airlines, because it is the world’s largest airline by scheduled revenue passenger miles. Structuring a margin transaction to buy a round lot of stock of the company will required an initial margin requirement that must be met when the transaction is initiated. Using regulation T, initial margin for stock purchasing on margin ranges between 40 to 100 percent.
Initial Margin = amount investor contributes/value of the transaction
In this case the MKT price is $20.63 buying 100 shares, total price of $2063, if buying on margin and the margin requirement being 50% an investor would have to contribute $1031.5 and having as initial margin $1031.50.
After placing the first trade all broker dealer requires a maintenance margin, the “maintenance margin is the absolute minimum amount of margin equity” (Jones