Question

In: Finance

5)Mrs Hanim wants to use the margin trading services offered by Kenanga Securities. The interest rate...

5)Mrs Hanim wants to use the margin trading services offered by Kenanga Securities. The interest rate on margin loan will be 8% annually. Kenanga securities has set margin requirement of 70% and investor has to maintain the margin above 50% or otherwise there might be a margin call. Currently the market price of stock for WMF is RM3.50 and Mrs Hanim decided to buy 20 lots of them. The company had given out dividend RM0.50 per share a year before stock issuance. The commission fees, stamp duty and clearing fees totaled to 1.5% of the transaction value.

What is the rate of return on her investment after holding a year and decided to sell it as the stock price goes to RM8.00 per share.

1000 share for one lot

Solutions

Expert Solution

Lot No. of Shares Price Amount in RM
a) Sale Price 20 1000 8       160,000
b) Cost of Investment 20 1000 3.5          70,000
commission fees, stamp duty and clearing fees (1.5%)            1,050
         71,050
Interest on Minimum required margin (calculated below)            2,800
Cost of Investment          73,850
Minimum Required Margin (50%)          35,000
Interest @ 8% p.a.            2,800
c) Profit from investment          86,150
Rate of Return on investment =86150/73850*100
116.66
Assumed that No dividend is delcared in current year.
If dividend is declared, please deduct RM 10,000 (20*1000*0.50) from Cost of Investment

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