Assume that stock J is priced at 94 shares and pays a dividend of 0.7/ share....

Assume that stock J is priced at 94 shares and pays a dividend of 0.7/ share. An investor the stock at margin 50% and borrowing the remainder from the broker at 10%.If after one year, the stock is sold at a price of $132 share, what is the return to the investment.

Expert Solution

Investor's own money = 94/2 = $47

Borrowing = 94-47 = $47

Interest on Borrowing = 47*10% = $4.7

Total Profit = Selling Price-Purchase Price+Dividend = 132-94+0.7 = $38.7

Return on Investment = [Total Profit-Interest on Borrowing]/Own Money = [38.7-4.7]/47 = 34/47 = 0.723404 = 72.3404%

jeff jeffy answered 2 years ago

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