Question

# 14- Jeff bought 100 shares of stock for \$30.00 per share on 70% margin. Assume Jeff...

14- Jeff bought 100 shares of stock for \$30.00 per share on 70% margin. Assume Jeff holds the stock for one year and that his interest costs will be \$45 over the holding period. Jeff also received dividends amounting to \$0.30 per share. Ignoring commissions, what is his percentage return on invested capital if he sells the stock for \$34 a share?

Total amount of shares bought by jeff = \$30.00 * 100 = \$3000.00

Invested capital = 70% margin of \$3000.00 = 0.70 * \$3000.00 = \$2100.00

The return generated = Profit from selling the stock (Selling Price - Buying Price)  + Dividend Earned during the year - interest costs for the period

=  (\$34 - \$30) *100 + \$0.30 * 100 (Number of Shares) - \$45

= 4 * 100 + 30 - 45 = 400 +30 - 45 = \$385

Percentage return on invested capital = Return generated / Invested capital = \$385 / \$2100.00 = 18.33%

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