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Solution: To Solve this question, we need three things Percentage Return:
- Net Purchase
- Net Sales
- Own Investment Cash Account Margin Account ( Shares Shares 100 10 $1,000 100
- Net Sales Shares Net Sales
- Net Sales Shares 100 17.5 $1,750 100 100 Percent of Net Purchases 75 Percent of Net Purchases $1,000 100% $1,000 $1, % Return= $1750-$1000-0+0 75% % Return= $1750-$1000+0- $1,000 $
A stock sells for $10 per share. You purchase 100 shares for $10 a share (i.e., for
$1,000), and after a year the price rises to $17.50. What will be the percentage return
on your investment if you bought the stock on margin and the margin requirement w
commissions, dividends, and interest expense.)
- Net Purchase
× Price =
Net Purchases 1. Net Purchase
× Price =
- Own Investment
- Own Investment × 100 =
Net Sales - Net Purchases + Divident - Interest Own Investment Margin Account (75%) 10 $1, Net Sales 17.5 $1, 75 Percent of Net Purchases 75% $ $1750-$1000+0-0 100%
10 a share (i.e., for
e the percentage return
e margin requirement was 75 percent? (Ignore
× Price =
Net Purchases
× Price =
× 100 =
Net Sales - Net Purchases - Divident + Interest Own Investment Margin Account (75%) 10 $1, Net Sales 7.5 $ 75 Percent of Net Purchases 75% $ 1750-$1000-0+0 -33%
10 a share (i.e., for
the percentage return
margin requirement was 75 percent? (Ignore
m 1 to determine the percentage return on your
to $7.50 per share.
× Price =
Net Purchases
× Price =
× 100 =
Solution: To Solve this question, we need five things
- Net Purchase
- Net Sales
- Own Investment, 4. Dividend, 5. Loan , 6. Amount of interest
Investor A (Cash Account)
Shares Purchases Commission Net Purchases 100 55 $5,500 $110 $5,
- Net Sales Shares Sales Commission Net Sales 100 70 $7,000 $140 $6, 100 Percent of Net Purchases $5,610 100% $5,
- Dividend Dividend 100 $ 5.00 $
- Loan loan $5,610 0% $
- Interest Interest $ % Return= $6860-$5610+$500-$0 31% $5,
Investor A makes a cash purchase of 100 shares of AB&C common stock for $55 a sha
holds the stock for one year, during which dividends of $5 a share are distributed. Co
margin requirement is 60 percent, and the interest rate is 10 percent annually on bor
or she sells the stock after one year for $70? (Including the impact of commision, div
- Net Purchase
× Price =
× Price =
- Own Investment × 100 =
margin. Each
r sale; the
investor if he
Solution: To Solve this question, we need five things
- Net Purchase
- Net Sales
- Own Investment, 4. Dividend, 5. Loan , 6. Amount of interest
Cash Account
Shares Price Purchases Commission Net Purchases 100 10 $1,000 $50 $1,
- Net Sales Shares Price Sales Commission Net Sales 100 14 $1,400 $70 $1, 100 Percent of Net Purchases $1,050 100% $1,
- Dividend Dividend 100 $ 1.00 $
- Loan loan $1,050 0% $
- Interest Interest $ % Return= $1330-$1050+$100-$0 36% $1,
Assume the investor buys 100 shares of stock for $10 a share and sells it for $14. Also
rate is 5 percent of the purchase or sale price, the interest rate is 10 percent, and the
the two positions
- Net Purchase
- Own Investment × 100 =
e commission
ing illustrates
