You’ve just opened a margin account with $18,000 at your local brokerage firm. Y
ID: 2382393 • Letter: Y
Question
You’ve just opened a margin account with $18,000 at your local brokerage firm. You instruct your broker to purchase 750 shares of Landon Golf stock, which currently sells for $78 per share. Suppose the call money rate is 6.5 percent and your broker charges you a spread of 1 percent over this rate. You hold the stock for 3 months and sell at a price of $85 per share. The company paid a dividend of $.33 per share the day before you sold your stock.
What is your total dollar return from this investment? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
What is your effective annual rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)
You’ve just opened a margin account with $18,000 at your local brokerage firm. You instruct your broker to purchase 750 shares of Landon Golf stock, which currently sells for $78 per share. Suppose the call money rate is 6.5 percent and your broker charges you a spread of 1 percent over this rate. You hold the stock for 3 months and sell at a price of $85 per share. The company paid a dividend of $.33 per share the day before you sold your stock.
Explanation / Answer
Total Cost Of share purchased 750*78 A
58500
Margin With Broker B
18000
Short term Finance Required(A-B)
40500
Short term loan reapyment after 3 month ie month of sales =40500*((1+(0.065+0.01)*3/12))
41259
Gross Proceed from sale of share = 750*85 A
63750
Dividend received .33*750 B
247.5
Total receipts from investment A+b
63997.5
Net Proceeds after Repayment of LOAN +63997-41259
22738
less margin Money
18000
Total Dollar Return
4738
Effective annual rate of return (4738/18000)*12months/3months
105.28%
Total Cost Of share purchased 750*78 A
58500
Margin With Broker B
18000
Short term Finance Required(A-B)
40500
Short term loan reapyment after 3 month ie month of sales =40500*((1+(0.065+0.01)*3/12))
41259
Gross Proceed from sale of share = 750*85 A
63750
Dividend received .33*750 B
247.5
Total receipts from investment A+b
63997.5
Net Proceeds after Repayment of LOAN +63997-41259
22738
less margin Money
18000
Total Dollar Return
4738
Effective annual rate of return (4738/18000)*12months/3months
105.28%
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