Question

Taylor Industries stock is selling for $26 a share. You would like to purchase as many shares of this stock as you can. Your margin account currently has available cash of $4,700 and the initial margin requirement is 60 percent. What is the maximum number of shares you can buy?
A. 193 shares
B. 287 shares
C. 301 shares
D. 360 shares
E. 408 shares

Answer 1

The maximum number of shares that we can buy is 301 shares.

Option C

Explanation:

margin account is the one that allows us to purchase a greater notional value of securities than the account's cash value.

Here, the margin account currently has available cash is $4700.

Maximum purchase can be calculated by dividing the margin account value divided by initial margin requirement.

Therefore, maximum purchase = $4,700/.6 = $7,833.33

Cost of one share is $26.

Maximum number of shares = $7,833.33/$26 = 301.269 which is approximately 301 shares, rounded down to the last full share.