Question

You bought $6,500 worth of a stock with a 60% margin. One year later you sold the stock for $7,500. The stock paid no dividends and the annual interest rate charged on your borrowed funds was 7.69%. What return did you receive on the investment?

Answer 1

Hello,

Stock amount at begining - $6500
Borrow amount - $6500 *40% = 2600
Interest paid on borrow amount = 2600*7.69% = 199.94
Stock sold at the end = 7500
Profit = 7500 - 6500 = $1000 per stock
Return = (1000 - interest paid on borrow amount ) / Amount invested at begining

Return =
Return =
Return = 20.514%

I hope this clear your doubt.

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