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Cosmo has a margin account with a balance of $50,000 with a national broker-dealer. The initial...

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Finance

Cosmo has a margin account with a balance of $50,000 with anational broker-dealer. The initial margin requirement on thisaccount is 50%. Cosmo is interested in purchasing shares ofArdvark, Inc., which is currently selling at $40 per share.

1. Given the above information, how many shares of Ardvark canCosmo purchase on margin?

A. 625

B. 1,250

C. 2,000

D. 2,500

2. If Cosmo purchases 1,000 shares of Ardvark on margin and theprice subsequently increases to $50 per share, what is hisprofit?

A. $5,000

B. $10,000

C. $20,000

D. $50,000

3. If the maintenance margin is 40%, to what price can shares ofArdvark fall before Cosmo receives a margin call?

A. $16.00

B. $24.00

C. $33.33

D. $37.50

Answer & Explanation Solved by verified expert
4.3 Ratings (789 Votes)
1 Initial Margin amount 50 of 25000 12500 Price per share of Ardvark Inc is 40 Number of shares that can be purchased are 1250040 625 Shares Option A 2 Buying amount of    See Answer
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Transcribed Image Text

Cosmo has a margin account with a balance of $50,000 with anational broker-dealer. The initial margin requirement on thisaccount is 50%. Cosmo is interested in purchasing shares ofArdvark, Inc., which is currently selling at $40 per share.1. Given the above information, how many shares of Ardvark canCosmo purchase on margin?A. 625B. 1,250C. 2,000D. 2,5002. If Cosmo purchases 1,000 shares of Ardvark on margin and theprice subsequently increases to $50 per share, what is hisprofit?A. $5,000B. $10,000C. $20,000D. $50,0003. If the maintenance margin is 40%, to what price can shares ofArdvark fall before Cosmo receives a margin call?A. $16.00B. $24.00C. $33.33D. $37.50

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