Question

suppose you buy a round lot of stock on 53.46% margin when it is selling at $55 a share. The broker charges a 10.81% annual interest rate and commissions are 3% of the total stock value on both the purchase and sale. If at year end you receive a $1.10 per share dividend and sell the stock for $57.50 what is your dollar profit or loss in this investment? show your computations

Answer 1

No	Particular	Cash Flow
In the beginning of year
1	In the beginning of 53.46% margin for $55 a share	(29.40)
2	Brokers Commission on purchase (3% of total stock value)	(1.65)
At the end of year
3	Dividend payout	1.10
4	Share sale	57.50
5	Annual Interest of 10.81% per annum on amount borrowed (i.e. 46.54% of $55)	(2.78)
6	Repayment of loan from Broker	(25.60)
7	Brokers commission on sale (3% of 57.50)	(1.73)
	Net Cash Flow/Dollar Loss (1+2+3+4+5+6+7)	(2.56)