You buy 300 shares of Qualitycorp for $30 per share and deposit initial margin of 50%.The next day, Qualitycorp's price drops to $25 per share.What is your actual margin?
A)50%
B)40%
C)33%
D)60%

Question

Quizplus · Accepted Answer

The actual margin is calculated as the equity in the account divided by the market value of the securities. Initially, you bought 300 shares at $30 each, totaling $9,000, with an initial margin of 50%, so you deposited $4,500. After the price drops to $25 per share, the value of the shares is now $7,500 (300 shares * $25). Your equity is the value of the shares minus the amount borrowed, which remains at $4,500 (since you deposited 50% and borrowed the rest). Therefore, the actual margin is $4,500 (equity) / $7,500 (current market value) = 0.6 or 60%. However, this calculation seems to have been misunderstood in the context of the question's intent, which was to calculate the margin after the price drop. Correcting this oversight: After the price drop, the equity is the current market value ($7,500) minus the borrowed amount ($4,500), which equals $3,000. So, the actual margin is $3,000 (new equity) / $7,500 (current market value) = 0.4 or 40%.

You Buy 300 Shares of Qualitycorp for $30 Per Share