In: Finance
Purchase price of stock = RM3.50
Purchase Value = 3.50 x 20 = RM70
Margin Availed (1- 70% of value) = 70 x 30% = RM21
i) Interest to be paid on margin availed = 21 x 8% = RM1.68
The investor has to pay the transaction charges at 1.5% of the value of purchase.
Actual purchase price for investor = Purchase Price + Transaction charges
= 3.50 + 1.5% x 3.50
= 3.5525
ii) The net purchase value for 20 lots = 20 x 3.5525 = RM71.05
The share of WMF was sold at RM8. The transaction charges need to be paid here as well
iii) The effective selling value of share for investor
= (8- 8 x 1.5%) x 20
= 7.88 x 20
= RM 157.60
The net return for investor = (Gains on the share after adding transaction charges - Interest paid on margin) / Purchase Value after adding transaction charge
= (157.60 - 71.05 - 1.68) / 71.05
= 84.07/ 71.05
= 119.45%
**If the dividend is also paid (the question only refers to last years dividend) in the current year at RM0.50 ,the investor would receive all of dividend, irrespective of margin.
The return for investor, if the dividend is also paid
= (Gains on the share after adding transaction charges - Interest paid on margin + Dividend earning) / Purchase Value after adding transaction charge
= (157.60 - 71.05 - 1.68 + (0.50 x20)) / 71.05
= 94.07/ 71.05
= 133.53%