Question

Ina purchased 800 shares of Detroit Motors stock at a price of $55 a share. The initial margin requirement is 65 percent and the maintenance margin is 30 percent. The effective interest rate on the margin loan is 4.69 percent. How much margin interest will she pay if she repays the loan in seven months?

Answer 1

Answer:

margin interest  = $417.29

Explanation:

given data

purchase share = 800

stock at a price = $55

initial margin requirement = 65 percent = 0.65

maintenance margin = 30 percent = 0.30

effective interest rate = 4.69 percent = 0.0469

time = 7 month = $\frac{7}{12}$ year

solution

we get here margin interest that is express as

margin interest = ( $(1+rate)^{time}$ -1 ) × ( purchase share × stock price × ( 1 - initial margin  )) ....................1

put here value we will get

margin interest  = ( $(1+0.0649)^{\frac{7}{12} } -1$ ) × ( 800 × 55 × ( 1 - 0.65 ) )

solve it we get

margin interest  = $417.29