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8 June, 21:50

Assume you purchased 400 shares of XYZ common stock on margin at $30 per share from your broker. A. If the initial margin is 55%, the amount you borrowed from the broker is $5400. B. What is the new margin if the price of share falls to $26?

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  1. 8 June, 22:15
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    Part A. $5,400

    Part B. $5,720

    Explanation:

    Part A.

    The Amount borrowed can be calculated by

    Amount Borrowed = 400 shares * $30 per share * (100% - 55%) = $5,400

    Part B.

    The New margin was 55% and as per the requirements the price of the share is $26, so

    The New Margin = 400 shares * $26 per share * 55% = $5,720
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