Theresa has a margin account with a 70% initial margin requirement and a 35% maintenance margin. What is the maximum dollar amount of stock she can purchase if her cash balance in the account is $27,000?
A)$9,450.00
B)$18,900.00
C)$38,571.43
D)$58,833.33
E)$77,142.86

Question

Quizplus · Accepted Answer

Theresa's maximum buying power can be calculated by dividing her account equity by the maintenance margin, then multiplying by the initial margin. 
Account equity = cash balance + market value of securities 
Let x be the market value of securities she can purchase. Then, 
0.7x = 27000 + x 
0.3x = 27000 
x = $90,000 
Therefore, her buying power is 0.7*$90,000 = $63,000 
Her maximum stock purchase is $63,000 - $27,000 (cash balance) = $36,000 
So, the answer is $36,000/0.65 = $38,571.43

Theresa Has a Margin Account with a 70% Initial Margin