# Thanks for nuking my margin question

Jerk

FYI, it is not from the Saturday exam.

A. About 3571 b. +/- 71.39% c. \$20 can anyone confirm or correct? Source- Reilly & Brown investment analysis and portfolio management - Lauren has a margin account and deposits \$50,000.  Assuming the prevailing margin requirement is 40%, commissions ignored, and he Gentry Shoe Corp is selling at \$35 per share. a. How many shares of Gentry Shoe can Lauren purchase using the maximum allowable margin? b.  What is Lauren’s profit (loss) if the price of Gentry’s sock 1.  Rises to \$45 2.  Falls to \$25 c.  If the maintenance margin is 30%, to what price can Gentry Shoe fall before Lauren will receive a margin call?

• Lauren has a margin account and deposits \$50,000.  Assuming the prevailing margin requirement is 40%, commissions ignored, and he Gentry Shoe Corp is selling at \$35 per share. a. How many shares of Gentry Shoe can Lauren purchase using the maximum allowable margin? b.  What is Lauren’s profit (loss) if the price of Gentry’s sock 1.  Rises to \$45 2.  Falls to \$25 c.  If the maintenance margin is 30%, to what price can Gentry Shoe fall before Lauren will receive a margin call? A) margin/initial margin % = \$50,000/.4 = \$125,000 = Total investment Total Investment/Price of Shares = # of Shares = \$125,000/\$35 = 3,571 SHS (rounded) B) Profit = (Ending Value-Loan) 1) (3,571 SHS)(\$45) - (\$125,000)(.6) = \$160,695 - \$75,000 = \$85,695 2) Ignoring costs of borrowing and purchasing shares, we know the leverage will have a mirror result. Therefore, -\$85,695. * Note: The question was asking for profit, not profit margins so the answer should be in dollars, not %. ** Since you did answer in %. The correct % would be \$85,695/\$50,000 - 1 = 71.39%

The answer to C is \$30? 35*((1-.4)/(1-.3))=30 35*.4=14-(35-30)=9/30=.3

I remember seeing this question in the EOC questions in the CFAI book - Equities.

njlevel10610 Wrote: ------------------------------------------------------- > I remember seeing this question in the EOC > questions in the CFAI book - Equities. That would make sense. This author is one of the source writer for the cfai. This is for a grad class and I just wanted a confirmation of my work. I’ll look into c once again.