Enter the total amount being borrowed, the interest rate, and the total time the margin is borrowed to determine the total margin amount.
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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.
