Question

Nathan bought 200 shares of stock at $40 per share ($8,000 total). He paid $5,000 in cash and borrowed $3,000 from the brokerage firm. The loan has an annual interest rate of 6 percent.
Six months later, the stock’s current price is $38 per share. If Nathan sells now, he will pay a commission of $160 and will have to repay the loan. If he sells now, he will lose $ __.00

Answer 1

If Nathan sells now, after paying a commission of $160 and margin account interest of $90, he will lose $650.

What is buying on margin?

Buying on margin is a situation when an investor buys an asset by borrowing the balance from the brokerage firm.

With buying on margin, the investor pays part of the investment cost while the remaining is met by the broker.

Data and Calculations:

Cost of 200 shares at $40 per share = $8,000

Investor's cash = $5,000

Margin purchase = $3,000

Interest rate = 6%

Interest amount = $90 ($3,000 x 6% x 1/2)

Commission = $160

Total amount spent = $8,250 ($8,000 + $90 + $160)

Total amount realized from sale = $7,600 ($38 x 200)

Loss from sale = $650 ($7,600 - $8,250)

Thus, if Nathan sells now, after paying a commission of $160 and margin account interest of $90, he will lose $650.

Learn more about margin accounts at brainly.com/question/17328883

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