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You buy $5,500 worth of stock using margin. The margin requirement is 60% and the maintenance...

You buy $5,500 worth of stock using margin. The margin requirement is 60% and the maintenance margin is 30%. Commissions are 2%. You hold the stock for one year during which you receive a $500 dividend. Interest on borrowed funds is 10%. You are able to sell the stock for $6,000.

What is your percent return?

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Answer #1

Investment by own funds = 5500*60% + 5500*2% = 3410

Loan = 5500*40% = 2200

Interest = 220

Particulars Amount
Sale price           5,880.00
Less: investment         (3,410.00)
Less: loan payment         (2,420.00)
Add: dividends              500.00
Dollar return              550.00
/ own investment           3,410.00
Return on investment 16.1290%

Answer is:

16.13%

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