In: Finance
You purchase 50 shares for $50 a share ($2,500), and after a year the price falls to $40. Calculate the percentage return on your investment if you bought the stock on margin and the margin requirement was (ignore commissions, dividends, and interest expense):
25 percent. Use a minus sign to enter the amount as a negative value. Round your answer to one decimal place.
%
65 percent. Use a minus sign to enter the amount as a negative value. Round your answer to one decimal place.
%
80 percent. Use a minus sign to enter the amount as a negative value. Round your answer to one decimal place.
%
Original Purchase price per share was $ 50.
Number of shares purchased = 50.
Total Amount invested = 50*50 - 2500
Current Value per share = 40
Total Loss = (Current Value - Original Value) * Number of shares
= (40 - 50) * 50 = 500
The loss of 500 will be funded from margin requirements.
Case A- 25 %
Total amount invested = Amount of share purchased * Margin Required
= 2500*25% = 625
Loss = 500
Current value = 625-500 = 125
Percentage loss = 500/625*100 = 80%
So in case A, The loss is 80%.
-80%
Case B- 65 %
Total amount invested = Amount of share purchased * Margin Required
= 2500*65% = 1625
Loss = 500
Current value = 1625-500 = 1125
Percentage loss = 500/1625*100 = 30.769%
So in case B, The loss is 30.769%.
-30.769% or -30.7%
Case C- 80 %
Total amount invested = Amount of share purchased * Margin Required
= 2500*80% = 2000
Loss = 500
Current value = 2000-500 = 1500
Percentage loss = 500/2000*100 = 25%
So in case C, The loss is 25%
-25%.