Question

In: Finance

Suppose you buy a round lot of Francesca Industries stock on 55 percent margin when the...

Suppose you buy a round lot of Francesca Industries stock on 55 percent margin when the stock is selling at R20 a share. The broker charges a 10 percent annual interest rate, and commissions are 3 percent of the stock value on the purchase and sale. A year later you receive a R0.50 per share dividend and sell the stock for R27 a share. What is your rate of return on Francesca Industries?

Solutions

Expert Solution

Let assume that you buy only one share

Since this has been purchased using margin account on 55 i.e 45% has been borrowed

Commision on purchase = 20*3% = R0.6

Cost of Share = R20.6

Commison on sales = 27*3% = R0.81

Interest on borrowing= 20*45%*10% = R0.9

Dividend - R0.5

Profit = Net realised value of share (Market value - realisation cost) + Dividend - Cost of Purchase - Intrest on borrowings

Calculation of profit= (R27- R0.81)+R0.5-R20.6-R0.9

Profit = R5.19

Return = (Profit/Cost of Purchase )*100

Rate of return = (5.19/20.6)*100= 25.20%

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Suppose you buy a round lot of Francesca Industries stock on 55 percent margin when the...
Suppose you buy a round lot of Francesca Industries stock on 55 percent margin when the stock is selling at R20 a share. The broker charges a 10 percent annual interest rate, and commissions are 3 percent of the stock value on the purchase and sale. A year later you receive a R0.50 per share dividend and sell the stock for R27 a share. What is your rate of return on Francesca Industries?
Suppose you buy a round lot of Francesca Industries stock (100 shares) on 60 percent margin...
Suppose you buy a round lot of Francesca Industries stock (100 shares) on 60 percent margin when the stock is selling at $35 a share. The broker charges a 14 percent annual interest rate, and commissions are 3 percent of the stock value on the purchase and sale. A year later you receive a $0.50 per share dividend and sell the stock for $47 a share. What is your rate of return on Francesca Industries? Do not round intermediate calculations....
Suppose you buy a round lot of Francesca Industries stock (100 shares) on 60 percent margin...
Suppose you buy a round lot of Francesca Industries stock (100 shares) on 60 percent margin when the stock is selling at $25 a share. The broker charges a 11 percent annual interest rate, and commissions are 2 percent of the stock value on the purchase and sale. A year later you receive a $0.75 per share dividend and sell the stock for $36 a share. What is your rate of return on Francesca Industries? Do not round intermediate calculations....
Suppose you buy 100 shares of stock XYZ at $10 a share with a margin of...
Suppose you buy 100 shares of stock XYZ at $10 a share with a margin of 50%. You also buy 200 shares of stock ABC at $50 a share with an 60% margin. You are very sure that, in six month, the price of the first stock would be $15 because you got insider information, but you are not so sure about the price of the second stock. Suppose you want to achieve a 20% return from your portfolio, then...
Suppose you have $400 in cash in your margin account. You want to buy a stock...
Suppose you have $400 in cash in your margin account. You want to buy a stock with 50% margin allowed by your broker and you decide you use full margin. Price of the stock is $10 per share. If stock price falls to $9, what is your margin % after the price fall?
You buy stock on margin in your brokerage account when it istrading at $37.21 per...
You buy stock on margin in your brokerage account when it is trading at $37.21 per share. You have $3500 in equity (cash) in your account and buy 155 shares.Your broker makes a margin loan so you can pay the difference at an annual rate of 0.0825 One year later the stock price is 51.13What is the margin percentage in the account one year after the trade is made?
Assume that you will buy stock on margin (i.e.; stock margin trading).  Assume that Texas Instruments Corp...
Assume that you will buy stock on margin (i.e.; stock margin trading).  Assume that Texas Instruments Corp stock is currently selling for $50 per share.  Assume that you will purchase 500 shares on July 29, 2002 at 11:00 AM. You have $15,000 of your own to invest and you will borrow an additional $10,000 from your broker at an interest rate of 10% per year.  Assume that the Maintenance Margin is 40%. 17)  Which of the following presents the balance sheet if the stock...
On January 1, you sold short one round lot (that is, 100 shares) of Lowe's stock...
On January 1, you sold short one round lot (that is, 100 shares) of Lowe's stock at $22.50 per share. On March 1, a dividend of $1.40 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $17.50 per share. You paid 55 cents per share in commissions for each transaction. a. What is the proceeds from the short sale (net of commission)? b. What is the dividend payment? c....
On January 1, you sold short one round lot (that is, 100 shares) of Lowe's stock...
On January 1, you sold short one round lot (that is, 100 shares) of Lowe's stock at $27.70 per share. On March 1, a dividend of $3.30 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $22.00 per share. You paid 25 cents per share in commissions for each transaction. a. What is the proceeds from the short sale (net of commission)? b. What is the dividend payment? c....
Suppose you want to buy Amazon stock if and only if you can buy it for...
Suppose you want to buy Amazon stock if and only if you can buy it for less than $3100/share. The kind of order you should place today if it is trading at $3164/share is a: Select one: a. Limit order b. Market order c. Stop-loss order d. Fungible order
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT