# About one of the corrections on Errata

I’m a bit confused of how precise we need to be on these calculations. Reading 52 Problem Practice 1 Vol. 5 p. 37 Lauren has a margin acc. and deposits \$50,000. Assuming the prevailing margin requirement is 40%, commissions are ignored, and the Gentry Shoe Corp. is selling at \$35 per share. A. How many shares can Lauren purchase using the max allowable margin? B. What is Lauren’s profit/loss if the price of Gentry’s stock i) rises to \$45? ii) falls to \$25? Ok. As regards for A, we can get the max allowable margin as \$50,000/40% = \$125,000 Then the number of shares purchased by the max margin would be: \$125,000/\$35 = 3571 (rounded) Given the information, Lauren’s own money invested is \$50,000. Since the max allowable margin is \$125,000, thus the loan is \$75,000. Yet, on errata, it says the investor would not try to purchase fractional shares in this situation… Consequently, the investor borrows \$74,985 instead of 75,000. Why the errata thinks \$74,985 is the more accurate way??? I would calculate B as below which I think is more accurate: B. i) stock price rises to \$45 Lauren’s Profit = \$45x(\$125,000/\$35) - \$125,000 = \$125,000 x 2/7 = \$35,714 ii) stock price falls to \$25 Lauren’s Loss = \$25x(\$125,000/\$35) - \$125,000 = - \$125,000 x 2/7 = - \$35,714 By the way, the errata’s corrected answers are \$35,710 and - \$35,710 respectively. So what’s your comment on this? Thanks much.