You purchased 1,000 shares of stock at $35 a share. The stock is currently selling for $39 a share. The initial margin was 70% and the maintenance margin is 30%. What is your current margin position?

Question

Quizplus · Accepted Answer

To calculate the original purchase price for 1,000 shares at $35 a share, we use the formula:

Purchase price = Number of shares x Price per share x (1 - Initial margin) 
Purchase price = 1,000 x $35 x (1 - 0.7) = $10,500

Therefore, the initial margin amount is:

Initial margin = Purchase price x Initial margin 
Initial margin = $10,500 x 0.7 = $7,350

To calculate the current market value, we use the formula:

Current market value = Number of shares x Current price per share 
Current market value = 1,000 x $39 = $39,000

To calculate the current margin position, we use the formula:

Current margin position = (Current market value - Loan balance) / Current market value 
Loan balance = Purchase price - Initial margin 
Loan balance = $10,500 - $7,350 = $3,150

Current margin position = ($39,000 - $3,150) / $39,000 
Current margin position = 0.9192 or 91.92%

Since the maintenance margin is 30%, the current margin position is well above that threshold at 91.92%. Therefore, the best choice is D) 73.08%.

You Purchased 1,000 Shares of Stock at $35 a Share