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You purchase 300 shares of HON at $89 per share on margin with 75% margin ratio...

You purchase 300 shares of HON at $89 per share on margin with 75% margin ratio (25% is financed by debt). If the price changes to $51.5 after 3 months (90 days), and the interest rate on the margin loan is 8%, what is your net percentage return on this position? Assume that your brokerage uses a 365 day convention for calculating daily interest rates, and that interest compounds daily. Enter answer in percents, positive for gains, negative for losses, accurate to 2 decimal places.

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Expert Solution

Total Value of purchase = 300 * 89 = 26700

Debt = 25%

So Debt = 26700 * 25% = 6675

Equity = 26700 - 6675 = 20025

Future value of debt = Present value*(1+(r/365))^90

Future value = 6675*(1+(8%/365))^90

= 6807.96

sale value = 300*51.5 = 15450

Net return = (sale value - repayment of debt - initial equity) / Initial Equity

= (15450 - 6807.96 - 20025) / 20,025

= -56.84%

jeff jeffy answered 2 years ago
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