HighFly Limited has recently launched a new line of product which provides a good prospect for the company’s future growth. Liam plans to invest a total amount of $50,000 in company’s shares at the market price of $25. Liam wants to borrow as much as she can from the broker to make this investment. The Initial margin requirement is 50%. The interest rate for borrowing is 8% p.a. What will happen if the share price drops to $22 at the end of the year and the maintenance margin requirement is 35%?
a) Liam will be asked by the broker to deposit more cash to restore the margin ratio back to 50%.
b) The remaining margin ratio is still above MMR so there will be no margin mall from the broker.
c) Liam will be asked by the broker to deposit more cash to restore the margin ratio back to 30%.
d) The broker will close Liam’s account as the remaining margin is too low.
