Page 13 - FINAL CFA I SLIDES JUNE 2019 DAY 12

LOS 44.f: Calculate and interpret the leverage ratio,
the rate of return on a margin transaction, and the Session Unit 13:

security price at which the investor would receive a 44. Market Structure & organisation
margin call, p.200
Maintenance margin requirement -a percentage % (typically 25% of the current position value
and below the Initial Margin Requirement) set to ensure that the margin loan is covered by the
value of the asset:

• If the % of equity in a margin account falls below the maintenance margin requirement, the
investor will receive a margin call, a request to augment back to the maintenance margin %

by depositing additional funds or depositing other un-margined securities.
• If the investor does not meet the margin call, the broker must sell the position.

tanties
The stock price which results in a margin call can be calculated by using the following formula:

Note that, any of this variables could be tested!

Example: Margin call price: If an investor
purchases a stock for $40 per share with an initial Meaning?
margin requirement of 50% and the maintenance
margin requirement is 25%, at what price will the
investor get a margin call?

Short sale is more profitable
When price falls but as the price falls,
there is bigger risk that…