Question

You want to purchase XON stock at $60 from your broker using as little of your own money as possible. If initial margin is 50% and you have $3000 to invest, how many shares can you buy?

Select one:

a. 100 shares

b. 200 shares

c. 50 shares

d. 25 shares

e. 500 shares

Answer 1

The number of shares is computed as shown below:

= (( Number of shares of XON x purchase price) - Investment amount ) / (Number of shares of XON x purchase price) = Initial margin

= ((Number of shares of XON x $ 60) - $ 3,000 ) / (Number of shares of XON x $ 60) = 0.50

= ((Number of shares of XON x $ 60) - $ 3,000 ) = Number of shares of XON x $ 30

= $ 30 x Number of shares of XON = $ 3,000

Number of shares of XON = 100 shares

So, the correct answer is option a.

Feel free to ask in case of any query relating to this question