Problem # 3: At the beginning of the day, you purchased 300 shares of stock for

Question

Problem # 3: At the beginning of the day, you purchased 300 shares of stock for $75 a share with an initial cash investment of $12,000. Your broker requires a 30 percent maintenance margin. At the end of the day, you took care of the margin call by depositing additional $500 in your brokerage account. What was the price of stock at the end of the day? [Hint: Focus on the alternative (a) of the earlier problem. You do not know the price, but you know how much additional amount you brought as a security deposition. Then solve the problem.]

Explanation / Answer

Calculation of price of the stock at the end of the day:

weare given that additional margin deposited was $500 it means the price of the stock fall. Total margin deposited = 12000 + 500 = 12500.

Maintenance margin requirement was = 30% of (300 shares *75) = $6750

Hence Fall in price of stock value was 6750 + 500 = 7250

So Price of the stock = (300 * 75 - 6750 ) / 300 = $52.50

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.