Suppose you purchase 1,150 shares of stock at $82 per share with an initial cash investment of $47,150. The call money rate is 5 percent and you are charged a 1.5 percent premium over this rate. Ignore dividends.
a. Calculate your return on investment one year later if the share price is $90. Suppose instead you had simply purchased $47,150 of stock with no margin. What would your rate of return have been now?
with margin = ?
without margin = ?
b. Calculate your return on investment one year later if the share price is $82. Suppose instead you had simply purchased $47,150 of stock with no margin. What would your rate of return have been now?
with margin = ?
without margin = ?
c. Calculate your return on investment one year later if the share price is $66. Suppose instead you had simply purchased $47,150 of stock with no margin. What would your rate of return have been now?
with margin = ?
without margin = ?