Question

Assume that an investor buys 100 shares of stock at $35 per share, putting up a 73% margin. a. What is the debit balance in this transaction? b. How much equity funds must the investor provide to make this margin transaction? c. If the stock rises to $54 per share, what is the investor's new margin position? a. The debit balance in this transaction is s (Round to the nearest dollar.) b. The amount of equity funds the investor must provide to make this margin transaction is S(Round to the nearest dollar) c. f the stock rises to $54 per share he investor's new margin position ıs % Enter as a percentage and round to two decimal places.

Answer 1

a. Investor buys total amount of stock of 100 shares * $35 per share = $3,500

As the margin requirements are 73%, amount debited will only be 100%-73% = 27%

Debit balance in transaction is 3500 *27% = $945

b.Amount of equity funds required is = margin * share bought amount = 63% * 3500 = $2205

c. If the stock rises to $54, then the value of the shares will also be 100 shares * 54 = $5,400

New Margin position in % would be = (New Total value of shares - debit balance in transaction) / New total value

=(5400 - 945) / 5400

=0.825 or 82.5%