Q:
Laura
bought 200 shares of GE at \$80 on a 70% margin and received
a margin call. Laura's online broker requires a minimum
of 30% coverage. If the request is no longer met, by
what % did GE fall?
A:
• 80
+ .7 = \$56 margin price
• 80
- 56 = \$24 in debt
• New
Low (NL) is [NL - \$24 = .3NL] or, 7NL
= \$24 = \$34 ¼ = Lowest price to maintain
30%
• 34/80
• GE
has to decline by at least 57% to reduce Laura's
equity low enough to trigger a call.

This
is fairly simple, the only elegant piece is realizing
the purpose of the proportional math in the algebra:
to "tease out" the effect on the equity
vs. debt portion of the investment. This logic appears
ubiquitously throughout financial and investment models.

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