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I wrote up another example to show the problem I’m having.  This is just an example and completely made up.


E.g.

If I wanted to take out the following Margin loan with the following securities:


Security____LVR____Amount of shares purchased________LV

BHP_______70%_________$5000_____________________$3500

BPT_______60%_________$5000_____________________$3000

FXJ_______70%__________$5000_____________________$3500

                     Total LV -      $10000

LVR – Loan Value Ratio

LV – Loan value


That would leave me with a total lending value of $10000.  Than say I chose to invest in the following portfolio:


Company_____Amount of shares purchased

BHP______________$5000

BPT______________$5000

FXJ______________$5000

ROC______________$10000 (not on accepted securities list)


At time of purchase I have:

Portfolio market value - $25000

Loan Balance - $10000

Loan Value - $10000 (5% Buffer - $500)


Than say BHP drops from share price of $40 (my purchase price) to $20 on 1st March ’09 but all my other shares stay the same.


On 1st March ‘09:

Portfolio market value - $22500 (reduced in value)

Loan Balance - $10000 (hasn’t changed)

Loan Value - $8250 (5% Buffer - $500) (reduced in value)


So because I have not payed off any of my loan yet and my loan value on 1st March ’09 with the buffer is $8750 (my LVR is really 66.66667% for my total portfolio).  I would have to pay at least $1250, taking the buffer into account, to meet my loan balance and get out of the margin call.


One thing I still don’t understand is what if ROC fell in price, which is not a secured share (not on approved list of shares), but just a share I bought with the loan money?  Is it only securities that have an LVR that can affect the LV price?  I must be missing how the portfolio value is linked to LV or something.


Thanks


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