You purchase 100 shares of stock at $100 ($10,000); the marginrequirement is 40 percent. What...

You purchase 100 shares of stock at $100 ($10,000); the margin requirement is 40 percent. What are the dollar and percentage returns if

a) you sell the stock for $112 and bought the stock for cash?

b) you sell the stock for $90 and bought the stock on margin?

c) you sell the stock for $60 and bought the stock on margin?

Please provide step-by step on how to solve in Excel

Solutions

Expert Solution

Margin amount = Purchase Price * Margin rate

= $ 10000 * 40%

= $ 4000

Amount Invested is $ 4000 not $ 10000

Part A:

% Return = [ Sale Price - Purchase Price ] / Amount Invested

= [ $ 11200 - $ 10000 ] / $ 4000

= $ 1200 / $ 4000

= 0.3 i.e 30%

Part B:

% Return = [ Sale Price - Purchase Price ] / Amount Invested

= [ $ 9000 - $ 10000 ] / $ 4000

= - $ 1000 / $ 4000

= -0.25 i.e -25%

Part C:

% Return = [ Sale Price - Purchase Price ] / Amount Invested

= [ $ 6000 - $ 10000 ] / $ 4000

= - $ 4000 / $ 4000

= -0.1 i.e -100%

jeff jeffy answered 2 years ago

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