You are opening a margin account with $12,500 in cash. The initial margin is 60% and the maintenance margin is 40%. What is the maximum number of shares you can purchase of a stock that is priced at $42 a share?

Question

Quizplus · Accepted Answer

With a 60% initial margin requirement, you can use the $12,500 in cash to buy up to $20,833.33 worth of stock ($12,500 / 0.60). At $42 a share, this allows you to purchase 496 shares ($20,833.33 / $42 = 496.03, but you can't buy a fraction of a share).

You Are Opening a Margin Account with $12,500 in Cash