Question

Mr. Salman wants to buy maximum number of odd lot shares of Atif Habib Investment Limited. The price per share is Rs. 75. Salman Buy maximum number of Arif Habib odd lot share on margin. He paid Rs. 7200 in cash and borrowing the rest of odd lot shares from brokerage firm at an annual interest rate of 12%. He sells the shares for Rs. 90 per share after one year and repays the brokerage firm borrowed amount and interest. Atif Habib paid dividend Re.3 per share over the year.

Question: Calculate the return from buying the stock on margin.

Answer 1

Odd lot share means shares between 0-100. [i.e more than zero and less than 100 share]

hence the maximum number of odd lot share is 99 shares.

hence Mr. Salman bought 99 share of Atif Habib Investment Limited

Current price per share = Rs.75

Total cost of 99 shares = 99 * Rs .75 = Rs.7425

Amount paid in cash = Rs.7200

Borrowing @12% interest = Rs.7425-Rs.7200 = Rs.225

		Amount(Rs)
	sales value of the 99 shares after 1 year	8910
	[Rs.90*99 share]
Less:	Amount to be paid for Borrowing along with interest	-252
	[Rs225+ (Rs.225*12%)]
Add:	Dividend received	297
	[Rs.3 per share * 99 share]
	Total cash flow after 1 year(A)	8955
	Initial cash incvestment(B)	7200
	Rs. Return on initial investment (A-B)=C	1755
	% Return on initial investment(C/B*100)	24.375%