Question

Claire Gerber wants to buy 1,000 shares of Google, which is selling in the market for $543.86 a share. Rather than liquidate all her savings, she decides to borrow through her broker at 5 percent a year. Assume that the margin requirement on common stock is 50%. If the stock rises to $630 a share over the next year, calculate the dollar profit and percentage return that Claire would earn if she makes the investment with 50% margin. Contrast these figures to what she'd make if she uses no margin.

Calculate the dollar net profit. Round the answers to the nearest dollar.

Without Margin	With 50% Margin
$	$

Calculate the return on investment. Round the answers to two decimal places.

Without Margin	With 50% Margin
%	%

Answer 1

Given,

No. of shares = 1000 shares

Current price = $543.86

Interest rate = 5%

Expected price = $630

Margin requirement = 50% or 0.50

Solution :-