You have an arrangement with your brokerage firm that allows you to purchase stock on margin with an initial margin requirement of 25 percent and a broker loan rate of 10 percent.What is the maximum amount of stock you can purchase on margin if you have $20,000 to invest?
A) $150,000
B) $72,000
C) $80,000
D) $22,000
E) $200,000

Question

Quizplus · Accepted Answer

The maximum amount of stock you can purchase on margin would be calculated by dividing the total investment amount by the initial margin requirement.

Maximum amount of stock = $20,000 / 0.25 = $80,000

However, it is important to remember that purchasing stocks on margin comes with risks, as the investor would be borrowing money to invest and would have to pay back the loan with interest. It is also important to consider market conditions and the potential for stock prices to fluctuate.

You Have an Arrangement with Your Brokerage Firm That Allows