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You purchase 500 shares of Anderson Corporation at $35 per share using an initial margin of 60%
You purchase 500 shares of Anderson Corporation at $35 per share using an initial margin of 60%. The stock is now selling for $61 per share and you want to use the excess equity in your account to pyramid. You want to purchase 400 shares of Watson Corporation at $125 per share. If the minimum initial margin is 50%, what is the minimum amount of equity that you will have to put up in this transaction? $33,250 You Answered $27,600 0 $21,400 Correct Answer $16,750
Expert Solution
Answer 1:
Calculation of sale proceeds
Initial sale proceeds received for Anderson corporation share (500*61*50%) = $15,250
Less: Remaining initial margin required to payment (500*35*40%) = $7,000
Net sales proceed received from shares of Anderson corporation = $8,250
Initial margin money required to purchase of Watson corporation (400*125*50%) = $25,000
Less: Net sales proceed received from shares of Anderson corporation = $8,250
Net Minimum amount required to purchase of share = $16,750
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