Josh Warner has a margin account and deposits $25,000 (the cash amount)

Finance Aug 29, 2020

Josh Warner has a margin account and deposits $25,000 (the cash amount). If the initial margin deposit is 40 percent, and JC Industries is currently selling at $25 per share:

How many shares of JC can Josh buy? What is Josh's profit ($) if JC's price rises to $42?

Expert Solution

Computation of the number of shares:-

Number of shares = Cash amount / (Initial margin * Price per share)

= $25,000 / (40% * 25)

= 2,500 shares

Computation of the profit:-

Profit = Number of shares * (Final price - Initial price)

= 2,500 * ($42 - $25)

= 2,500 * $17

= $42,500

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