Personal Finance 1st Edition by Jack R. Kapoor

Exercise 35

Using Margin. Bill Campbell invested $4,000 and borrowed $4,000 to purchase shares in Walmart. At the time of his investment, Walmart stock was selling for $70 a share.

a. If Bill paid a $30 commission, how many shares could he buy if he used only his own money and did not use margin?

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b. If Bill paid a $50 commission, how many shares could he buy if he used his $4,000 and borrowed $4,000 on margin to buy Walmart stock?

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c. Assuming Bill did use margin, paid a $90 total commission to sell his Walmart stock, and sold his stock for $77 a share, how much profit did he make on his Walmart investment?

Step 1 of 3

a.

Calculation of Total Number of shares:

Number of shares is computed by amount invested by the purchase price per share.

Substitute $4,000 for amount invested by own and $70 per share of W company

Purchase Price per share of W Company-$70 per share

Hence, BC can buy 57 shares of W Company if he invested only his own money.