QUESTION 7 10 points Save Answer You purchase 300 shares of HON at $85 per share

Question

QUESTION 7 10 points Save Answer You purchase 300 shares of HON at $85 per share on margin with 75% margin ratio (25% is financed by debt). If the price changes to $108 after 3 months (90 days), and the interest rate on the margin loan is 8%, what is your net percentage return on this position? Assume that your brokerage uses a 365 day convention for calculating daily interest rates, and that interest compounds daily. Enter answer in percents, positive for gains, negative for losses, accurate to 2 decimal places

Explanation / Answer

EAR = ( 1 + 8%/365)365 - 1 = 8.3278%

interest = 8.3278% of 0.25*300*85 = 530.8945

net gain = 300*(108-85) - 530.8945 = 6369.1055

net % return = 6369.1055/0.75*300*85 = 33.30%

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