Suppose the call money rate is 4.5 percent, and you pay a spread of 2.5 percent

Question

Suppose the call money rate is 4.5 percent, and you pay a spread of 2.5 percent over that. You buy 900 shares of stock at $46 per share. You put up $17,000. One year later, the stock is selling for $60 per share, and you close out your position. What is your return assuming a dividend of $.23 per share is paid?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Suppose the call money rate is 4.5 percent, and you pay a spread of 2.5 percent over that. You buy 900 shares of stock at $46 per share. You put up $17,000. One year later, the stock is selling for $60 per share, and you close out your position. What is your return assuming a dividend of $.23 per share is paid?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Explanation / Answer

Total investment required = $46 * 900

= $41,400

Call money raised amount = $41,400 - $17,000

= $24,400

Return on stock = ($60 - $46 + $0.23) * 900

= $12,807

Cost of call money = $24,400 * (4.5% + 2.5%)

= $1,708

Therefore, actual return on invested amount = ($12,807 - $1,708) / $17,000

= 65.29%

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.