Alfonso purchased 500 shares of Crosswinds, Inc., stock on 60% margin when the stock was selling for $35 a share. The stock is currently selling for $33 a share. What is his current equity position?

Question

Quizplus · Accepted Answer

First, we need to calculate the amount of money Alfonso borrowed to purchase the stock. Since he bought the stock on 60% margin, he paid 40% of the purchase price (the margin) and borrowed the remaining 60%. Therefore, the amount he borrowed is:

$35 x 500 x 0.6 = $10,500

Next, we need to calculate his current equity position. This is simply the current value of the stock minus the amount he still owes on the margin loan. The current value of his 500 shares is:

$33 x 500 = $16,500

To figure out the amount he still owes on the margin loan, we need to multiply the number of shares by the original purchase price and the margin requirement (in this case, 60%). This gives us:

$35 x 500 x 0.6 = $10,500

Therefore, his current equity position is:

$16,500 - $10,500 = $6,000

This means that at present, Alfonso's equity in the stock is $6,000.

Alfonso Purchased 500 Shares of Crosswinds, Inc