Final answer:
The student needs to borrow $2,610 to purchase 150 shares of Talk&Tell stock with a 71% initial margin requirement. The balance sheet would list $9,000 in assets (value of stocks), $2,610 in liabilities (amount borrowed), and $6,390 in equity (investor's contribution).
Step-by-step explanation:
The student purchased 150 shares of Talk&Tell stock at $60 per share. With an initial margin requirement of 71%, they must calculate how much money they need to borrow to buy the stock.
a. To calculate the amount of money to borrow, first determine the total cost of purchasing the stock:
Total cost = Number of shares × Price per share = 150 × $60 = $9,000.
Next, calculate the investor's contribution based on the initial margin requirement:
Investor's contribution = Total cost × Initial margin requirement = $9,000 × 0.71 = $6,390.
Therefore, the amount to borrow = Total cost - Investor's contribution = $9,000 - $6,390 = $2,610.
b. To construct the corresponding balance sheet for the transaction:
- Assets: the value of the stock ($9,000)
- Liabilities: the amount borrowed ($2,610)
- Equity: the investor's contribution ($6,390)
Assuming no other fees or transactions, the totals for assets and liabilities plus equity would each be $9,000, in order to balance.