Assume you buy 100 shares of stock at $40 per share on margin (40 percent). If the price rises to $55 per share, what is your percentage gain on the initial equity? No of shares = 100; Price of stock = $40; Position taken = long Equity required in account (Initial Margin) = 40% x (100 shares x $40) = 40% x $4,000 = $1,600 Gain percentage = {[(Current price -Entry price) no of shares]/Initial Margin} x 100 = {[($55 - $40) 100 shares] / $1,600} x 100 = $1,500 / $1,600 x 100 = 93.75% In problem 1, what would the percentage loss on the initial equity be if the price had decreased $28? Loss percentage = {[(current price – entry price) no of shares] / Initial Margin} x 100 = {[($28 - $40) 100 shares] / $1,600} x 100 = {[ -$12 x 100 shares] / $1,600} x 100 = -$1,200 / $1,600 x 100 = -75% 3. Assume you have a 25 percent minimum margin standard in problems 1 and 2. With a price decline to $28, will you be called upon to put up more margin to meet the 25 percent rule? Disregard the $2,000 minimum margin balance requirement. 4. Recompute the answer to problem 3 based on a stock decline to $23.75.
- Assume you buy 100 shares of stock at $40 per share on margin (40 percent). If the price rises to $55 per share, what is your percentage gain on the initial equity?
No of shares = 100; Price of stock = $40; Position taken = long
Equity required in account (Initial Margin) = 40% x (100 shares x $40)
= 40% x $4,000
= $1,600
Gain percentage = {[(Current price -Entry price) no of shares]/Initial Margin} x 100
= {[($55 - $40) 100 shares] / $1,600} x 100
= $1,500 / $1,600 x 100
= 93.75%
2. In problem 1, what would the percentage loss on the initial equity be if the price had decreased to $28?
Loss percentage = {[(current price – entry price) no of shares] / Initial Margin} x 100
= {[($28 - $40) 100 shares] / $1,600} x 100
= {[ -$12 x 100 shares] / $1,600} x 100
= -$1,200 / $1,600 x 100
= -75%
3. Assume you have a 25 percent minimum margin standard in problems 1 and 2. With a price decline to $28, will you be called upon to put up more margin to meet the 25 percent rule? Disregard the $2,000 minimum margin balance requirement.
4. Recompute the answer to problem 3 based on a stock decline to $23.75.
![Assume you buy 100 shares of stock at $40 per share on margin (40 percent). If the price rises to $55
per share, what is your percentage gain on the initial equity?
1.
No of shares = 100; Price of stock = $40; Position taken = long
Equity required in account (Initial Margin) = 40% x (100 shares x $40)
= 40% x $4,000
= $1,600
Gain percentage = {[(Current price -Entry price) no of shares]/Initial Margin} x 100
= {[($55 - $40) 100 shares] / $1,600} x 100
= $1,500 / $1,600 x 100
= 93.75%
2. In problem 1, what would the percentage loss on the initial equity be if the price had decreased to
$28?
Loss percentage = {[(current price – entry price) no of shares] / Initial Margin} x 100
= {[($28 - $40) 100 shares] / $1,600} x 100
= {[ -$12 x 100 shares] / $1,600} x 100
= -$1,200 / $1,600 x 100
= -75%
Assume you have a 25 percent minimum margin standard in problems 1 and 2. With a price decline
to $28, will you be called upon to put up more margin to meet the 25 percent rule? Disregard the
$2,000 minimum margin balance requirement.
3.
4. Recompute the answer to problem 3 based on a stock decline to $23.75.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F04a17b8f-f754-4879-89bf-041b548ec1c3%2Fbeb22781-c3a9-4bf8-8527-2f5e3416e943%2F4n577h_processed.png&w=3840&q=75)
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