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You purchase 750 shares of 2nd Chance Co. stock on margin at a price of $44. Your broker requires you to deposit $17,500. What is your margin loan amount? What is your margin requirement in percentage terms?

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zainsubhani

Answer:

Part A:

Margin Loan mount= $15500

Part B:

Margin requirement in percentage= 53.03%

Explanation:

Part A:

Formula:

[tex]Margin\ loan\ amount=(stock\ price*Shares)-Deposit[/tex]

In our case:

Stock Price=$44

Shares=750 shares

Deposit=$17,500

[tex]Margin\ loan\ amount=(\$44*750\ Shares)-\$17500\\Margin\ loan\ amount=\$15500[/tex]

Part B:

Formula:

[tex]Margin\ Requirement=\frac{ Deposit}{(stock\ price*Shares)}[/tex]

In our case:

Stock Price=$44

Shares=750 shares

Deposit=$17,500

[tex]Margin\ Requirement=\frac{\$17500}{(\$44*750)}\\Margin\ Requirement=0.5303[/tex]

In Percentage:

Margin requirement in percentage=[tex]0.5303*100=53.03\%[/tex]

PHEN0MENAL1

Answer:

Purchase price of 750 shares of 2nd Chance Co. stock = 750 * Price of a stock

= 750 * $ 44

= $ 33,000

Hence, Margin loan amount = Purchase price of stock - Deposit required by broker to purchase the 2nd Chance Co. shares

= $ 33,000 - $ 17,500

= $ 15,500

Hence, Margin loan requirement in % = Margin loan amount / Purchase price of stock

= $ 15,500 / $ 33,000

=0.4696 = 47% (Approx.)

Explanation:

Refer to the answer.

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