o You invest $10,000 in a stock using a margin account with a 50% initial margin. o You borrow $10,0
o You invest $10,000 in a stock using a margin account with a 50% initial margin.
o You borrow $10,000 from the broker.
So, your total position is $20,000, with $10,000 of your own money and $10,000 borrowed from the broker.
2. Maintenance Margin:
o Let’s assume the broker requires a 30% maintenance margin (this is the minimum amount of equity you need to maintain in the account).
3. Stock Price Drops:
o The price of the stock drops by 25%. Now, the value of your stock is $15,000.