Question

Calculating Margin (LO3, CFA4) Carson Corporation stock sells for $17 per share, and you’ve decided to purchase as many shares as you possibly can. You have $31,000 available to invest. What is the maximum number of shares you can buy if the initial margin is 60 percent?

Question 1
Maximum investment=$31000/.60			$51,666.7
Numebr of shares= 51667/$17 per share =				3,039.22	shares

Calculating Margin (LO3, CFA4) Using the information in Problem 1, construct your equity account balance sheet at the time of your purchase. What does your balance sheet look like if the share price rises to $24? What if it falls to $14 per share? What is your margin in both cases? Round the number of shares down to the nearest number of whole shares.

Answer 1

	Solution:-
a)`	Equity account balance sheet
	Assets	Amount	Liabilities and account equity	Amount
	3039 shares	$51,663.00	Margin loan	$20,665.20
			Account equity	$30,997.80
	Total	$51,663.00	Total	$51,663.00
b)	Equity account balance sheet When stock price is $24
	Assets	Amount	Liabilities and account equity	Amount
	3039 shares	$72,936.00	Margin loan	$20,665.20
			Account equity	$52,270.80
	Total	$72,936.00	Total	$72,936.00
c)	Equity account balance sheet When stock price is $14
	Assets	Amount	Liabilities and account equity	Amount
	3039 shares	$42,546.00	Margin loan	$20,665.20
			Account equity	$21,880.80
	Total	$42,546.00	Total	$42,546.00
	Please feel free to ask if you have any query in the comment section