You purchase 200 shares of stock at a price of $42 per share on a 60 percent initial margin. If you are charged an effective rate of 6.9 percent on the margin loan, how much interest will you be charged if you repay the loan in 6 months?
A) $109.18
B) $113.99
C) $115.92
D) $171.47
E) $173.88

Question

Quizplus · Accepted Answer

To calculate the interest charged on the margin loan, first determine the amount borrowed. With a 60% initial margin on a purchase of 200 shares at $42 each, the total purchase is $8,400. The amount borrowed is 40% of this (100% - 60% = 40%), which is $3,360. The interest for 6 months (0.5 years) at an annual rate of 6.9% on $3,360 is calculated as $3,360 * 6.9% * 0.5 = $113.99.

You Purchase 200 Shares of Stock at a Price of $42