Todd has a margin account with $17,400 in available cash. The initial margin is 70% and the maintenance margin is 30%. What is the maximum number of shares he can purchase if the price per share is $44?
A)395 shares
B)564 shares
C)698 shares
D)744 shares
E)842 shares

Question

Quizplus · Accepted Answer

To find the maximum number of shares Todd can purchase, we first calculate the total amount he can invest using the initial margin requirement. The initial margin is 70%, so Todd can leverage his $17,400 to buy more shares. The formula is: Total Investment = Available Cash / Initial Margin = $17,400 / 0.70 = $24,857.14. Then, divide this total investment by the price per share: $24,857.14 / $44 = 564.025 shares. Since he can't purchase a fraction of a share, the maximum whole number of shares he can buy is 564.

Todd Has a Margin Account with $17,400 in Available Cash