Question

The margin requirement on a stock purchase is 25%. You fully use the margin allowed to purchase 100 shares of MSFT at $25.

If the price drops to $22, what is your percentage loss?Assume interest rate of borrowing is 0.

Answer 1

Return or Percentage Loss=-0.48=-48%

Step-by-step explanation:

Given Data:

The margin requirement on a stock purchase =25%

Number of shares=100 shares

Price of purchase=$25/ share

Drop in Price=$22

Required:

Percentage loss=?

Solution:

Loss occurred=($22-$25)*100

Loss occurred=-$300

Actual amount at which shares are bought=0.25*($25*100)

Actual amount at which shares are bought=$625

Return or Percentage Loss=
`(Loss)/(Actual \ Amount)`

Return or Percentage Loss=
`(-300)/(625) =-0.48`

Return or Percentage Loss=-0.48=-48%