Question

You’ve just opened a margin account with $15,600 at your local brokerage firm. You instruct your broker to purchase 650 shares of Landon Golf stock, which currently sells for $48 per share. Suppose the call money rate is 6 percent and your broker charges you a spread of 1.5 percent over this rate. You hold the stock for four months and sell at a price of $55 per share. The company paid a dividend of $0.27 per share the day before you sold your stock.

a. What is your total dollar return from this investment? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. What is your effective annual rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Answer 1

1.

=650*(55-48)+650*0.27-(650*48-15600)*7.5%*4/12

=4335.50

2.

=(1+4335.50/15600)^(12/4)-1

=108.69%