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A year ago, Kim Altman purchased 300 shares of BLK, Inc. for $27.50 on margin. At...

A year ago, Kim Altman purchased 300 shares of BLK, Inc. for $27.50 on margin. At that time the margin requirement was 40 percent. If the interest rate on borrowed funds was 8 percent and she sold the stock for $38.50, what is the percentage return on the funds she invested in the stock? Round your answer to two decimal places.

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Answer #1

Shares purchased Value = No. of shares * share price = 300 * $27.50 = $8,250

Kim's own money = shares purchased value * margin requirement = $8,250 * 0.40 = $3,300

Loan Required = Total Purchased value - kim's own money = $8,250 - $3,300 = $4,950

Interest on loan = Loan required * interest rate = $4,950 * 0.08 = $396

Total selling Value = No. of shares * share price = 300 * $38.50 = $11,550

Total Gain = Total Selling Value - Shares Purchased Value - Interest on loan

= $11,550 - $8,250 - $396 = $2,904

Percentage on Return = Total Gain / Kim's Money = $2,904 / $3,300 = 0.88, or 88%

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