You purchased 100 shares of IBM common stock on margin at $70 per share. Assume the initial margin is 50%, and the maintenance margin is 30%. Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest on margin.
A. $21
B. $50
C. $49
D. $80
B. $50
100 shares × $70 × 0.5 = $7,000 × 0.5 = $3,500 (loan amount); 0.30 = (100P $3,500)/100P; 30 – P = 100P – $3,500; –70P = –$3,500; P = $50.
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