Suppose you purchase 650 shares of stock at $50 per share with an initial cash i
ID: 2382961 • Letter: S
Question
Suppose you purchase 650 shares of stock at $50 per share with an initial cash investment of $10,000. 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 $58. Suppose instead you had simply purchased $10,000 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 $50. Suppose instead you had simply purchased $10,000 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 $34. Suppose instead you had simply purchased $10,000 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.)
a.Calculate your return on investment one year later if the share price is $58. Suppose instead you had simply purchased $10,000 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.)
Explanation / Answer
uppose you purchase 650 shares of stock at $50 per share with an initial cash investment of $10,000. The call money rate is 5 percent and you are charged a 1.5 percent premium over this rate.
a.Calculate your return on investment one year later if the share price is $58. Suppose instead you had simply purchased $10,000 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.)
Working
Inirtial Investment = 10000
Borrowed Margin = 650*50 - 10000 = $ 22500
Interest Cost = 22500*(5%+1.5%) = $ 1462.50
Net Income = (650 * (58-50))- 1462.50
Net Income = $ 3737.50
Rate of return =Net Income/Inirtial Investment
Rate of return = 3737.50/10000
Rate of return = 37.38%
Suppose instead you had simply purchased $10,000 of stock with no margin
Inirtial Investment = 10000
No of Share Purchased =10000/50 = 200
Net Income = (200 * (58-50))
Net Income = $ 1600
Without margin, rate of return=Net Income/Inirtial Investment
Without margin, rate of return = 1600/10000
Without margin, rate of return= 16%
Answer
Rate of return 37.38%
Without margin, rate of return 16%
b.Calculate your return on investment one year later if the share price is $50. Suppose instead you had simply purchased $10,000 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.)
Working
Inirtial Investment = 10000
Borrowed Margin = 650*50 - 10000 = $ 22500
Interest Cost = 22500*(5%+1.5%) = $ 1462.50
Net Income = (650 * (50-50))- 1462.50
Net Income = - $ 1462.50
Rate of return =Net Income/Inirtial Investment
Rate of return = -1462.50/10000
Rate of return = -14.63%
Suppose instead you had simply purchased $10,000 of stock with no margin
Inirtial Investment = 10000
No of Share Purchased =10000/50 = 200
Net Income = (200 * (50-50))
Net Income = $ 0
Without margin, rate of return=Net Income/Inirtial Investment
Without margin, rate of return = 0/10000
Without margin, rate of return= 0%
Answer
Rate of return -14.63%
Without margin, rate of return 0%
c.Calculate your return on investment one year later if the share price is $34. Suppose instead you had simply purchased $10,000 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.)
Working
Inirtial Investment = 10000
Borrowed Margin = 650*50 - 10000 = $ 22500
Interest Cost = 22500*(5%+1.5%) = $ 1462.50
Net Income = (650 * (34-50))- 1462.50
Net Income = - $ 11862.50
Rate of return =Net Income/Inirtial Investment
Rate of return = -11862.50/10000
Rate of return = - 118.63%
Suppose instead you had simply purchased $10,000 of stock with no margin
Inirtial Investment = 10000
No of Share Purchased =10000/50 = 200
Net Income = (200 * (34-50))
Net Income = - $ 3200
Without margin, rate of return=Net Income/Inirtial Investment
Without margin, rate of return = -3200/10000
Without margin, rate of return= -32%
Answer
Rate of return -118.63%
Without margin, rate of return -32%
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