must be at least 30% of the value of your short position at all times. How far can the price of IBM stock go up before you get a margin call? Let P be the price of IBM stock. Then the value of the shares you must return is 1,000P, and the equity in your account is $150,000 1,000P. Your short position margin ratio is therefore ($150,000 1,000P)/1,000P. The critical value of P is thus I. Introduction 3. How Securities Are Traded The McGraw−Hill Companies, 2001           E X C E L A P P L I C A T I O N S       BUYING ON MARGIN   The accompanying spreadsheet can be used to measure the return on investment for buy- ing stocks on margin. The model is set up to allow the holding period to vary. The model also calculates the price at which you would get a margin call based on a specified mainte-     A B C D E 1 2 Buying on Margin Ending Return on 3 St Price Investment 4 Initial Equity Investment 10,000.00 -42.00% 5 Amount Borrowed 10,000.00 20 -122.00% 6 Initial Stock Price 50.00 25 -102.00% 7 Shares Purchased 400 30 -82.00% 8 Ending Stock Price 40.00 35 -62.00% 9 Cash Dividends During Hold Per. 0.50 40 -42.00% 10 Initial Margin Percentage 50.00% 45 -22.00% 11 Maintenance Margin Percentage 30.00% 50 -2.00% 12 55 18.00% 13 Rate on Margin Loan 8.00% 60 38.00% 14 Holding Period in Months 6 65 58.00% 15 70 78.00% 16 Return on Investment 75 98.00% 17 Capital Gains on Stock -4,000.00 80 118.00% 18 Dividends 200.00 19 Interest on Margin Loan 400.00 20 Net Income -4200.00 21 Initial Investment 10,000.00 22 Return on Investment -42.00% 23