Question

Suppose the call money rate is 6.8 percent, and you pay a spread of 1.9 percent over that. You buy 1000 shares at 63 dollars per share with an initial margin of 70 percent. One year later, the stock is selling for 68 per share and you close out your position. what is your return assuming no dividends are paid?

Answer 1

Call money rate 6.80%

Spread 1.90%

Effective rate 8.70%

Shares price 63

No. of shares 1000

Value 63000

Margin % 70%

Equity = Margin value 44100

Loan 18900

One year later

Pay back loan 20544.30 =18900*(1+8.7%)

Shares price 68

No. of shares 1000

Value 68000.00

Equity 47455.70

Return 7.61%