You purchase 900 shares of 2nd Chance Co. stock on margin at a price of $41. You

Question

You purchase 900 shares of 2nd Chance Co. stock on margin at a price of $41. Your broker requires you to deposit $19,000.

Suppose you sell the stock at a price of $48. What is your return? What would your return have been had you purchased the stock without margin? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

What is your return if the stock price is $40 when you sell the stock? (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

You purchase 900 shares of 2nd Chance Co. stock on margin at a price of $41. Your broker requires you to deposit $19,000.

Explanation / Answer

1.

With margin = ($48-$41) * 900/$19,000

= 33.16%

Without margin = ($48-$41) * 900/($41 * 900)

= 17.07%

2.

Return = ($40-$41) * 900

= -$900

With margin = -$900 / $19,000

= -4.74%

Without margin = -$900 / ($41 * 900)

= -2.44%

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