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Margin Trading and Percentage Return on Investment: A Financial Analysis, Slides of Development Economics

Complete concept for development economics

Typology: Slides

2019/2020

Uploaded on 04/29/2020

HafizRehman779
HafizRehman779 🇨🇦

2 documents

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Solution:
To Solve this question, we need three things Percentage Return:
1. Net Purchase
2. Net Sales
3. Own Investment
Cash Account
Margin Account (75%)
Shares Shares
100 10 $1,000 100
2. Net Sales Shares Net Sales 2. Net Sales Shares
100 17.5 $1,750 100
100 Percent of Net Purchases
75 Percent of Net Purchases
$1,000 100% $1,000 $1,000
% Return= $1750-$1000-0+0 75% % Return=
$1750-$1000+0-0
$1,000 $750
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 was 75 percent? (Ignore
commissions, dividends, and interest expense.)
1. Net
Purchase
× Price = Net
Purchases 1. Net
Purchase
× Price =
3. Own
Investment
3. Own
Investment
× 100 =
pf3
pf4
pf5
pf8
pf9
pfa

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Solution: To Solve this question, we need three things Percentage Return:

  1. Net Purchase
  2. Net Sales
  3. Own Investment Cash Account Margin Account ( Shares Shares 100 10 $1,000 100
  4. Net Sales Shares Net Sales
  5. 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.)

  1. Net Purchase

× Price =

Net Purchases 1. Net Purchase

× Price =

  1. Own Investment
  2. 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

  1. Net Purchase
  2. Net Sales
  3. 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,

  1. Net Sales Shares Sales Commission Net Sales 100 70 $7,000 $140 $6, 100 Percent of Net Purchases $5,610 100% $5,
  2. Dividend Dividend 100 $ 5.00 $
  3. Loan loan $5,610 0% $
  4. 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

  1. Net Purchase

× Price =

× Price =

  1. Own Investment × 100 =

margin. Each

r sale; the

investor if he

Solution: To Solve this question, we need five things

  1. Net Purchase
  2. Net Sales
  3. Own Investment, 4. Dividend, 5. Loan , 6. Amount of interest

Cash Account

Shares Price Purchases Commission Net Purchases 100 10 $1,000 $50 $1,

  1. Net Sales Shares Price Sales Commission Net Sales 100 14 $1,400 $70 $1, 100 Percent of Net Purchases $1,050 100% $1,
  2. Dividend Dividend 100 $ 1.00 $
  3. Loan loan $1,050 0% $
  4. 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

  1. Net Purchase
  2. Own Investment × 100 =

e commission

ing illustrates