USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Kathy Smith has a margin account with a balance of $60,000. Initial margin requirements are 80 percent, and Jackson Industries is currently selling at $40 per share.
-Refer to Exhibit 3.3. What is Kathy's profit if Jackson's price rises to $50?
A) $18,750
B) $15,750
C) $55,000
D) $37,750
E) $28,570

Question

Quizplus · Accepted Answer

Kathy can buy $60,000 / 0.8 = $75,000 worth of stock at $40 per share, which equals 1875 shares ($75,000 / $40). If the price rises to $50, the value of her shares becomes 1875 shares * $50 = $93,750. Her profit is $93,750 (final value) - $75,000 (initial value) = $18,750.