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Politics : Formerly About Applied Materials

AMAT 322.73

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3:59 PM EST

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To: Jacob Snyder who wrote (13281)	12/15/1997 12:24:00 AM
From: Math Junkie	Read Replies (1) of 70976

While we're on the subject of margin, I derived a formula for what percentage of equity you need to protect yourself from a margin call if your portfolio value drops by a certain percentage. In the following formulas, all percentages are expressed as fractions - i.e., 50% is expressed as 0.5. The variable names are as follows: E2 is the equity percentage to start with E1 is the equity percentage at which a margin call occurs V is the percentage of decline in stock value E2 = E1 + V(1-E1) The following table shows the results if your broker gives margin calls at 30 per cent equity: Per Initial Cent Per Cent Drop Equity Required 90% 93% 80% 86% 70% 79% 60% 72% 50% 65% 40% 58% 30% 51% 20% 44% 10% 37% If you want to start with a known equity percentage and find out what percentage of drop in stock value you can take, the formula is V = (E2 - E1)/(1 - E1) Initial Per Cent Per Cent Drop Which Equity Produces Margin Call 90.00% 85.71% 80.00% 71.43% 70.00% 57.14% 60.00% 42.86% 50.00% 28.57% 40.00% 14.29% Notice that it is rather non-linear. When you get below 60% quity, your downside protection deteriorates in a hurry.

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