Suppose you purchase 1,300 shares of stock at $53 per share with an initial cash

Question

Suppose you purchase 1,300 shares of stock at $53 per share with an initial cash investment of $30,000. 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 $61. Suppose instead you had simply purchased $30,000 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 $53. Suppose instead you had simply purchased $30,000 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 $37. Suppose instead you had simply purchased $30,000 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.)

Suppose you purchase 1,300 shares of stock at $53 per share with an initial cash investment of $30,000. The call money rate is 5 percent and you are charged a 1.5 percent premium over this rate.

Explanation / Answer

a)interest on loan =(5%+1.5%)*((1300*53)-30,000)
=$2528.5

After sale proceddings=1300*61=$79,300
Return=(79300-(1300*53)-2528.5)/30000
=26.24%

with out margin
rate of return =(61-53)/53= 15.1%

b)
interest on loan =(5%+1.5%)*((1300*53)-30,000)
=$2528.5

After sale proceddings=1300*53=$68,900
Return=(68900-(1300*53)-2528.5)/30000
=-8.43%

with out margin
rate of return =(53-53)/53= 0%

c)
interest on loan =(5%+1.5%)*((1300*53)-30,000)
=$2528.5

After sale proceddings=1300*37=$48,100
Return=(48100-(1300*53)-2528.5)/30000
=-77.76%

with out margin
rate of return =(47-53)/53= -30.19%

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