Sarah purchased 700 shares of Detroit Motors stock at a price of $55 a share. The initial margin requirement is 60% and the maintenance margin is 35%. The effective interest rate on the margin loan is 4.5%. How much margin interest will she pay if she repays the loan in four months?

Question

Quizplus · Accepted Answer

To calculate the margin interest, first determine the amount borrowed. Sarah bought 700 shares at $55 each, so the total cost is 700 * $55 = $38,500. With a 60% initial margin requirement, Sarah paid 60% of $38,500 = $23,100 herself, meaning she borrowed $38,500 - $23,100 = $15,400. The annual interest on this amount at 4.5% is $15,400 * 0.045 = $693. The question asks for the interest for four months, so $693 * (4/12) = $231. The closest answer to this calculation is $227.62.

Sarah Purchased 700 Shares of Detroit Motors Stock at a Price