Question

1. Assume you purchased 500 shares of XYZ common stock on margin at $40 per share from your broker. If the initial margin is 60%, the amount you borrowed from the broker is _________. A. $20,000 B. $12,000 C. $8,000 D. $15,000

Answer 1

Answer:

$8,000

Explanation:

500 shares was purchased from XYZ common stock at $40

The initial margin is 60%

Therefore the amount borrowed from the broker can be calculated as follows

= 500 × 40 ×(1-60/100)

= 20,000×(1-0.6)

= 20,000 × 0.4

= $8,000

Hence the amount borrowed from the broker is $8,000