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Question:

A small investor just bought 100 shares of UYA on margin. The share price of UYA at the time of purchase was $50, the initial margin requirement is 50%, and the maintenance margin is 30%. Given this information, the margin call trigger price is closest to:

A $35.71
explanation

Trigger price = Initial purchase price × [(1 – Initial margin) / (1 – Maintenance margin)] = [$50 x (1 – 0.5)] / (1 – 0.3) = $35.71
The investor will receive a margin call when the stock price falls to $35.71.
CFA Level 1, Volume 5, Study Session 13, Reading 44 – Market Organization and Structure, LOS 44f: Calculate and interpret the leverage ratio, the rate of return on a margin transaction, and the security price at which the investor would receive a margin call

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