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A year ago, Kim Altman purchased 300 shares of BLK, Inc. for $36.00 on margin. At...

A year ago, Kim Altman purchased 300 shares of BLK, Inc. for $36.00 on margin. At that time the margin requirement was 50 percent. If the interest rate on borrowed funds was 6 percent and she sold the stock for $44.50, what is the percentage return on the funds she invested in the stock?

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Answer #1

1. Total Cost of Shares = Share Price * Shares Purchased = $36 * 300 = $10800

2. Own Funds Invested = Cost of shares * margin requirement = $10800 * 50% =$5400

3. Amount Borrowed = Cost of shares - Own Funds invested = 10800 - 5400 = 5400

4. Interest on Borrowed funds = Borrowed funds * Interest = 5400 * 6% = $324

5. Sale value of Shares = Shares Sold * Sale price = 300 * 44.50 = $13350

5. Percentage return = (Sale Value - Cost of shares - Interest Paid) / Own funds invested

Percentage return = (13350 - 10800 - 324) / 5400

Percentage return = 41.22%

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