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Lisa Lasher buys 420 shares of stock on margin at $25 per share. If the margin...

Lisa Lasher buys 420 shares of stock on margin at $25 per share. If the margin requirement is 40 percent, how much must the stock rise for her to realize a 30-percent return on her invested funds? (Ignore dividends, commissions, and interest on borrowed funds.) Round your answer to the nearest cent.

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Answer #1

Total margin requirement = Total shares x Per share price x margin percentage

Total margin requirement = 420 x 25 x 40%

Total margin requirement = $4200

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Total profit required to book 30% gain = 4200 x 30% = $1260

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Target stock value rise = Total share x Price per share + Total profit required to book 30% gain

Target stock value rise = 420 x 25 + 1260

Target stock value rise = $11,760

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New per share price = Target stock value / Total shares

New per share price = 11760 / 420

New per share price = $28.00

Hence, new stock price should rise to $28.00 or should rise by $3.00 from its previous price $25

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