Question

# *Please show work and explain* An investor bought 100 shares of Copier Corp. for \$90 a...

*Please show work and explain*

An investor bought 100 shares of Copier Corp. for \$90 a share. The firm paid an annual dividend of \$4 a share; the margin requirement was 60 percent with an interest rate of 8 percent on borrowed funds, and commissions on the purchase were \$15 and on the sale were another \$15. The price of the stock rose to \$120 in one year.

What is the percentage return earned on the investment if the stock is bought on margin? Show answer in percentage terms to two places

 Return on investment if bought on margin (Net sale price + Dividend - Interest - Purchase price)/Net margin paid Net purchase price (100*90)+15 Net purchase price \$9,015 Margin amount paid 60%*((100*90)+15) Margin amount paid \$5,409 Amount borrowed 40%*((100*90)+15) Amount borrowed \$3,606 Interest on amount borrowed 3606*8% Interest on amount borrowed 288.48 Dividend received \$400 4*100 Net sale price (120*100)-15 Net sale price \$11,985 Return on investment if bought on margin (11985+400-288.48-9015)/5409 Return on investment if bought on margin 3081.52/5409 Return on investment if bought on margin 56.97% Thus, return on investment if bought on margin is 56.97%

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