Your brokerage firm allows market trading with an initial margin requirement equal to 60 percent plus an 8 percent broker loan rate.You have $6,000 to invest.How many shares of ABC can you purchase on margin? ABC stock currently sells for $50 a share.
A) 100
B) 200
C) 92
D) 194
E) 108

Question

Quizplus · Accepted Answer

To calculate the number of shares you can purchase on margin, first determine the total amount you can control with your $6,000 given the 60% initial margin requirement. This means you can control $6,000 / 0.60 = $10,000 worth of stock. At $50 per share, you can purchase $10,000 / $50 = 200 shares of ABC.

Your Brokerage Firm Allows Market Trading with an Initial Margin