Question

Not long​ ago, Jack Edwards bought 300 shares of Almost Anything Inc. at $44.07 per​ share; he bought the stock on margin of 61%. The stock is now trading at $63.88 per​ share, and the Federal Reserve has recently lowered initial margin requirements to 53%. Jack now wants to do a little pyramiding and buy another 400 shares of the stock. What is the minimum amount of equity that​ he'll have to put up in this​ transaction?

Answer 1

Amount in margin at the time of buying 300 shares of Almost anything Inc = 300*$44.07*61% = $ 8,065

Presently amount available in margin account = Inital margin + ($63.88-$44.07)*300 shares

= $ 8,065 +($ 19.81 * 300shares

= $ 8,065 + $ 5,943

= $14,008 = $14,000 (roundeoff)

Minimum amount required to buy additional 400 shares = 700shares * $ 63.88 * 53% = $23,700

Minimum amount of equity that he'll have to put up in this transaction = $23,700 - $14,000 = $9,700