Question

An investor buys $15 thousand dollars of ABT stock at $20 per share, using 59% initial margin. The broker charges 7% APR compounded daily on the loan, and requires a 35% maintenance margin. The stock pays $0.57 per share dividend each year. If the stock is sold at the end of the year at $21 per share, what is the investor's rate of return?

You sell short 200 shares of BSX at $50 per share. You post the 50% margin required for the short sale. Assume you pay 5%interest on the initial value of the loan of shares. The company stock pays dividends of $0.47 per share every quarter. What is your rate of return on this position, if you close it out at $41 per share after one year?

Answer 1

Ans - In part A an investor has buy the shares at 59% margin so we would calculate his profit from his initial cost and we add the interest on loan for which he has taken from broker.

But in second part he has sell the stock so he is entitled to give dividend to buyer of the share. So its like a cost to him.

In this he sell shares for which he receives money. On the other hand he is paying dividend and interest out of it, so we deduct that amount and in the end he buys shares and made a profit of 9 per share .

$15,000 collar share at do pet share being 59.1. initial Margin gt meone 41.% he is taking loon Total shares - 15000/ do 700 shares 41% loon of 15000 = 6150 (x15000) = Interest 7% pa on 0.01918 % daily Total Interest - [C1400g ser J x 6150 = [107950 -1 ] x 6150 - 72509) 6150 Unrelest ५५९९९ STEP2 : Total Cost = 59% of 15000 = 8850 Cost Inleret & 44588 9295.88 Sale of shares = 750 xa1 per share - 15750

Dividend - 057 ! 4975 Total - 15750 +487.5 - $161775 161775 - 9995.88 6881.62 Return t = 6981.62 x1w 929588 = 74.1 PARTE 200 shares of 50 each - $10000 Initial Margin = 507 le soy of 10000 = 5000 Loan Value = 5000 Interest on loon- 5000 x 54. = 250

= Iniliad Maign - 5000 Less Dividend - (376) Lost Inlevert = (250) Plus Peopt (9 perstore) = 1800 6174 Prolit = 6174 - 5000 1174 Relan = 1174 xw 5000 - 23.487