You\'ve just opened a margin account with $13.475 at your local brokerage firm.

Question

You've just opened a margin account with $13.475 at your local brokerage firm. You instruct your broker to purchase 550 shares of Landon Golf stock, which currently sells for $49 per share Suppose the call money rate is 6 percent and your broker charges you a spread of 1.25 percent over this rate. You hold the stock for three months and sell at a price of $56 per share. The company paid a dividend of $0.28 per share the day before you sold your stock a. What is your total dollar return from this investment? (Do not round intermediate calculations. Round your answer to 2 decimal places.) 3 Answer is not complete. Dollar return b. What is your effective annual rate of return? (Do not round intermediate caiculations. Enter your answer as a percent rounded to 2 decimal places.) Answer is complete and correct Effective ansual etum 167 60 167 60 %

Explanation / Answer

Purchase Value of Share $ 26950 550 shares * 49 per share Amount Borrowed $ 13475 Purchase Value of Shares- Margin Account DEPOSIT Interest On Loan $ 237.86 (13475)*(1.0725^3/12) - 13475 Dividend Received on Shares $ 154 550 shares * Dividend per share Sale Value of Shares $ 30800 550 shares * S.P.Per share Return on Dollar $ 3766.14 Sale value+ Dividend- Margin amount-Interest on loan-Loan borrowed

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