Question

An investor purchased 400 shares of a company at $30 per share. The stock was bought on 65 percent margin (35 percent of the purchase amount was borrowed). One month later, the investor had to pay interest on the amount borrowed at a rate of 3 percent per month. At that time, the investor received a dividend of $0.50 per share. Immediately after receiving the dividend, he sold the shares at $35 per share. The investor paid total commissions of $30 on the initial purchase and $40 on the final sale of the stock. What was the rate of return on this investment for the one-month period?

Answer 1

1]	Margin deposited = 400*30*65% =	$ 7,800.00
	-Commission on purchase	$          30.00
	-Interest charged by broker = 400*30*35%*3% =	$        126.00
	+Dividends received = 400*0.50 =	$        200.00
	+Margin on sale = 400*(35-30) =	$ 2,000.00
	-Commission on final sale	$          40.00
	Balance in margin account	$ 10,056.00
2]	Rate of return for the 1 month period = 10056/7800-1 =	28.92%

answered by: anonymous