Question

On February 3, 2020 you purchased 300 shares of MSFT common stock at $152 per share on margin. The initial margin is 60 percent. MSFT paid an amount of dividend of $2 per share on March 1, 2020. Today (April 3, 2020) you close your position at $158 per share. The interest rate is 12 percent per year compounded daily.

a. Prepare an initial margin account.

b. Determine the holding period rate of return of your investment.

c. Determine the annual percentage rate of return of your investment.

Answer 1

a)

Initial Margin Account:

Debit		Credit
Shares Purchased [300*152]	45600	Dividend [300*2]	600
Interest on Margin Loan [{300*152*40%*(1.0003288^27)}-{300*152*0.4}]	162.6215	Shares Sold [300*158]	47400
Profit [Balancing Figure]	2237.379
Total	48000	Total	48000

b)

Holding Period Return = Profit/Initital Margin = 2237.379/(300*152*0.6) = 0.0818 = 8.18%

c)

Annual Percentage Return = Holding Period Return*365/Holding Period = 0.0818*365/27 = 1.1058 = 110.58%