Suppose you purchase 850 shares of stock at $54 per share with an initial cash i

Question

Suppose you purchase 850 shares of stock at $54 per share with an initial cash investment of $14,000. The call money rate is 5 percent and you are charged a 1.5 percent premium over this rate.

Calculate your return on investment one year later if the share price is $62. Suppose instead you had simply purchased $14,000 of stock with no margin. What would your rate of return have been now? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Calculate your return on investment one year later if the share price is $54. Suppose instead you had simply purchased $14,000 of stock with no margin. What would your rate of return have been now? (Negative amounts 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.)

Calculate your return on investment one year later if the share price is $38. Suppose instead you had simply purchased $14,000 of stock with no margin. What would your rate of return have been now?(Negative amounts 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.)

I only need the rate of return with margin for each part! I don't know how to find that.

Suppose you purchase 850 shares of stock at $54 per share with an initial cash investment of $14,000. The call money rate is 5 percent and you are charged a 1.5 percent premium over this rate.

Explanation / Answer

Call money raised = $54 * 850 - $14,000

= $31,900

a. Rate of return = [($62 - $54) * 850 - (5% + 1.5%) * $31,900] / $14,000

= 33.76%

b. Rate of return = [($54 - $54) * 850 - (5% + 1.5%) * $31,900] / $14,000

= -14.81%

c. Rate of return = [($38 - $54) * 850 - (5% + 1.5%) * $31,900] / $14,000

= -111.95%

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