Question

# Question text Calculate the euro-based return an Italian investor would have realized by investing €100,000 into...

Question text

Calculate the euro-based return an Italian investor would have realized by investing €100,000 into a \$50 American stock on margin with only 40% down and 60% borrowed. The stock pays a \$0.30 quarterly dividend, and after one year the investment sells for \$54 the exchange has changed from €.625 per dollar to €.6875 per dollar. The interest on the margin loan is 1% per year. The margin loan is denominated in dollars.

Select one:

a. 28.73%

b. 36.95%

c. 32.06%

d. 24.70%

b) 36.95%

 Total Per share 1 Investment € 100000 2 Investment (\$) 160000 (E100000/0.625) 3 Margin loan (\$) 240000 (\$160000/0.4*0.6) 4 Total amount available 400000 (2+3) 5 No of shares 8000 (400000/50) 6 cost of shares -400000 50 (50*8000) 7 Sale price 432000 54 (54*8000) 8 Dividend 9600 1.2 (1.2*8000)->0.3 per quarter 9 Interest on margin -2400 (240000*1%) 10 Total profit (\$) 39200 Sum(Step 6: Step 9) 11 Total cash in hand (\$) 199200 (Step 10+ Step 2) Margin loan returned 12 Total cash in hand (E) 136950 step 11*0.6875 13 Profit in E 36950 Step 12-Step 1 14 Profit % 36.95 Step 13/Step 1 * 100

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