Problem:
You've just opened a margin account with $18,000 at your local brokerage firm. You instruct your broker to purchase 750 shares of Landon Golf stock, which currently sells for $78 per share. Suppose the call money rate is 6.5 percent and your broker charges you a spread of 1 percent over this rate. You hold the stock for 6 months and sell at a price of $85 per share. The company paid a dividend of $0.33 per share the day before you sold your stock.
Requirement:
Question 1: What is your total dollar return from this investment?
Question 2: What is your effective annual rate of return?
Note: Show supporting computations in good form.