Formerly About Applied Materials Message Board

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Politics : Formerly About Applied Materials

AMAT 234.51

+1.6%

10:17 AM EST

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To: Jacob Snyder who wrote (20067)	6/10/1998 8:15:00 PM
From: Math Junkie	of 70976

Regarding protecting against margin calls for a 50% drop (your number 9), I worked out a formula for how much equity you would need to maintain in order to protect yourself against a given percentage price drop. In the following formula, all percentages are expressed as fractions - e.g., 50% is expressed as 0.5. The variables are as follows: E1 is the equity percentage to start with E2 is the equity percentage at which a margin call occurs D is the percentage decline in stock value The formula is E1 = E2 + D x (1 - E2) As an example, if your investment holdings are sufficiently diversified, E*Trade allows your equity to fall to 35% before you get a margin call. Using the formula above, you would need an initial equity percentage of 67.5% to protect against a possible 50% stock price decline.

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