Intro

The price of Facebook stock is currently $43.56 and you decide to buy 180 shares on margin. The inital margin is 60%.

Attempt 2/3 for 10 pts.

Part 1

How much money will you borrow from the broker if you borrow as much as possible?

Correct

Assets		Liabilities & Equity
Value of shares (N*P)	7,841	Loan	3,136
		Equity	4,704
Total	7,841	Total	7,841

The value of stocks, and thus the assets in the account, are: A = N * P = 180 * 43.56 = 7,841

Since the initial margin is 60%, we have to contribute at least 60% of this amount to the account. Assuming that we borrow as much as possible, we contribute the minimum:

Contribution = 0.6 * 7,841 = 4,704 This is the initial dollar margin (or equity) in the account.

We borrow the remainder: Loan = A - E = 7,841 - 4,704 = 3,136

Attempt 1/3 for 10 pts.

Part 2

If the price falls to $39.1, what is the new percentage margin in the account?