Question 1

Whitney just purchased 100 shares of Disney (DIS)stock for $135.00 a share. Her broker required a cash payment of $10,125, not including trading costs, for the purchase. What is her initial margin requirement for this stock?
A)70%
B)75%
C)80%
D)90%
E)100%

Accepted Answer

The initial margin requirement is calculated by dividing the cash payment by the total purchase price of the shares. The total purchase price is 100 shares * $135 = $13,500. The cash payment is $10,125. Therefore, the initial margin requirement is $10,125 / $13,500 = 0.75 or 75%.

Question 2

Todd has $54,000 cash in his margin account. His initial margin is 60% and the maintenance margin is 35%. What is the maximum number of shares he can purchase if the price per share is $25?
A)1,296 shares
B)2,160 shares
C)3,600 shares
D)5,400 shares
E)6,171 shares

Accepted Answer

The initial margin is 60% which means Todd can purchase stocks worth 60% of the total value of his account:

0.6 * $54,000 = $32,400

This is the maximum amount of money he can borrow to purchase stocks. Since the price per share is $25, the maximum number of shares he can purchase is:

$32,400 / $25 per share = 1,296 shares

However, Todd needs to also consider the maintenance margin of 35%. This means that Todd needs to maintain at least 35% of the total value of his account in the form of cash or securities.

35% * $54,000 = $18,900

If the value of his account falls below this amount, he will receive a margin call and will need to add more funds or securities to his account.

To calculate the maximum number of shares he can purchase while also considering the maintenance margin, we need to look at the amount of money he has left after accounting for the maintenance margin:

$54,000 - $18,900 = $35,100

This is the amount of money he can use to purchase shares. Dividing this by the price per share gives:

$35,100 / $25 per share = 1,404 shares

Therefore, the maximum number of shares Todd can purchase while also considering the maintenance margin is 1,404 shares.

Question 3

Maddie recently short sold 400 shares of common stock for $25 a share. Her initial margin requirement was 70% and the maintenance margin is 35%. The stock is currently trading at $22.22 a share. What is her current short position in this stock?
A)$2,666
B)$7,000
C)$8,888
D)$10,000
E)$11,333

Accepted Answer

Maddie's current short position is calculated by multiplying the current stock price by the number of shares: 400 shares * $22.22 = $8,888.

Question 4

Colton would like to purchase as many shares of Apple stock (AAPL)as he is able. He currently has $10,000 in cash and the stock is selling for $250 a share. How many shares can he purchase if the initial margin is 70% and the maintenance margin is 35%?
A)28 shares
B)40 shares
C)52 shares
D)57 shares
E)114 shares

Accepted Answer

The answer of Colton would like to purchase as many...

Quiz 2: The Investment Process

Whitney just purchased 100 shares of Disney (DIS) stock for $135.00 a share. Her broker required a cash payment of $10,125, not including trading costs, for the purchase. What is her initial margin requirement for this stock?

Todd has $54,000 cash in his margin account. His initial margin is 60% and the maintenance margin is 35%. What is the maximum number of shares he can purchase if the price per share is $25?

Maddie recently short sold 400 shares of common stock for $25 a share. Her initial margin requirement was 70% and the maintenance margin is 35%. The stock is currently trading at $22.22 a share. What is her current short position in this stock?

Colton would like to purchase as many shares of Apple stock (AAPL) as he is able. He currently has $10,000 in cash and the stock is selling for $250 a share. How many shares can he purchase if the initial margin is 70% and the maintenance margin is 35%?