Question

"A customer opens a margin account by purchasing 300 shares of XYZ stock at $80 per share and deposits the required margin. If the stock declines in value by 25%, the customer's equity in the account will:"

Answer 1

Answer:

Equity will increased by 50%

Explanation:

Given:

Number of stock = 300

Per share value = $80

Stock value decline = 25%

Find:

Customer's equity will ?

Computation:

Market value = 300 × $80 = $24,000

New market value = $24000 × (100% - 25%) = $18,000

Margin = $24000 × 50% = $12,000

Credit balance = $24,000 (100% / 75%)

Credit balance = $24,000 + $12,000

Credit balance = $36,000

Equity % = [Credit balance - New market value / Credit balance]100

Equity % = [($36,000 - $18,000) / $18,000]100

Equity will increased by 50%