Enter the total amount being borrowed, the interest rate, and the total time the margin is borrowed to determine the total margin amount.
Margin Interest Formla
The following formula is used to calculate the total amount of interest paid to borrow a certain amount of margin over a given time and interest.
MI = B * (IR/100) /360 * T
- Where MI is total margin interest paid ($)
- B is the total margin borrowed ($)
- IR is the interest rate on the margin
- T is the number of days the margin is borrowed for
Example Problem
How to calculate margin interest?
- First, determine the total amount of margin borrowed.
For this example, an investor is looking to borrow $30,000.00 on margin to purchase a stock for a short period of time.
- Next, determine the interest rate of the margin.
The brokerage that this investor uses charges a margin interest rate of 7%.
- Next, determine the total amount of days the margin is borrowed for.
In this case, the investor only intends to hold the stock for 30 days.
- Finally, calculate the total margin interest paid.
Using the formula above, the margin interest is calculated to be:
MI = B * (IR/100) /360 * T
MI = 30,000 * (7/100) /360 * 30
MI = $175.00.
It would cost this investor $175.00 to borrow $30,000.00 for 30 days at a 7% interest rate.
