You recently purchased 1,300 shares of stock at a cost per share of $54.10. The initial margin requirement on this stock is 60% and the maintenance margin is 30%. The stock is currently valued at $42.30 a share. What is your current margin position? Ignore margin interest.

Question

Quizplus · Accepted Answer

The current value of the stock is 1,300 shares * $42.30 = $54,990. The initial investment was 1,300 shares * $54.10 = $70,330. The initial margin requirement means you financed 60% of this purchase, so your equity was 40% of $70,330 = $28,132. Now, your equity is the current value of the stock ($54,990) minus the amount borrowed ($70,330 - $28,132 = $42,198). So, your equity is $54,990 - $42,198 = $12,792. Your current margin position is your equity divided by the current value of the stock, which is $12,792 / $54,990 = 0.2326 or 23.26%. However, since none of the options match this calculation, it appears there was a mistake in the calculation process. Let's correct it:The correct calculation for the current margin position is to find the equity in the investment and then divide by the current market value of the stock. The initial investment was 1,300 * $54.10 = $70,330. The amount borrowed is 40% of this, as 60% was the initial margin (the question wording might have been misinterpreted; the initial margin requirement means you must put down 60%, not borrow 60%). Therefore, you actually financed $70,330 * 40% = $28,132, and your own money in the investment was $70,330 - $28,132 = $42,198.With the stock's value now at $42.30 per share, the current market value of the shares is 1,300 * $42.30 = $54,990. Your equity in the investment is the current value of the shares ($54,990) minus what you owe ($28,132), which equals $26,858. Therefore, your current margin position is $26,858 / $54,990 = 0.4884 or 48.84%.

You Recently Purchased 1,300 Shares of Stock at a Cost