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?

Question

Quizplus · Accepted Answer

The initial investment is $9,000 (300 shares * $30/share), with an initial margin of 50%, so you borrow $4,500 and use $4,500 of your own money. After the price drops to $25 per share, the value of the shares is $7,500 (300 shares * $25/share). Your equity in the investment is the current value of the shares ($7,500) minus the amount borrowed ($4,500), which equals $3,000. The actual margin is the equity ($3,000) divided by the current value of the shares ($7,500), which equals 40%.

You Buy 300 Shares of Qualitycorp for $30 Per Share