Answer:
[tex]Px = \frac{[(N*P) +(N*P*M1]/N}{1+ M2}[/tex]
And if we replace we have this:
[tex] Px =\frac{[(500*41) +(500*41*0.6]/500}{1+ 0.4}[/tex]
[tex] Px= 46.857 \ approx 46.86[/tex]
So then the highest the stock price can go before you receive a margin call if the maintenance margin is 40 percent is $ 46.86.
See explanation below.
Explanation:
For this case we define the following notation:
N= 500 represent the number of stocks for JAsper
P = 41 represent the stock price
M1 = 60% = 0.6 represent the initial margin
Px represent the highest stock price the variable of interest for this case
M2= 40% or 0.4 represent the mainteneance margin
We can find the value of Px with the following formula on this case:
[tex]Px = \frac{[(N*P) +(N*P*M1]/N}{1+ M2}[/tex]
And if we replace we have this:
[tex] Px =\frac{[(500*41) +(500*41*0.6]/500}{1+ 0.4}[/tex]
[tex] Px= 46.857 \ approx 46.86[/tex]
So then the highest the stock price can go before you receive a margin call if the maintenance margin is 40 percent is $ 46.86.
