Question

Currently, the price of Mattco stock is $30 a share. You have $30,000 of your own funds to invest. Using the maximum margin allowed of 50%, what is your percentage profit or loss if you purchase the stock and it rises to $33 a share (ignore dividends and taxes)? a. 20% b. 10% c. 15% d. 30%

Answer 1

Answer:

Option (a) 20%

Explanation:

Data provided in the question:

Current price of the Mattco stock = $30 per share

Funds invested = $30,000

Maximum margin allowed = 50% = 0.5

Final price of the stock = $33 per share

Now,

Number of shares purchased = $\frac{\text{Amount invested}}{\text{Maximum margin allowed X currentprice per share}}$

= $\frac{30,000}{0.5\times30}$

= 2,000

Gain per share = Final price - Current price

= $33 - $30

= $3 per share

Thus,

total Gain = Gain per share × Number of shares purchased

= $3 × 2,000

= $6,000

Therefore,

Percentage of gain = [Total gain ÷ Amount invested ]  × 100%

= [6,000 ÷ 30,000] × 100%

= 20%

Hence,

Option (a) 20%