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You purchase 1,000 share of 2nd Chance Co. stock on margin at a price of $46....

You purchase 1,000 share of 2nd Chance Co. stock on margin at a price of $46. Your broker requires you to deposit $25,000.
A, Suppose you sell the stock at a price of $50. What is your return? WHat would your return have been had you purchased the stock without margin?
With Margin?
Without Margin?

B. What is your return if the stock is $44 when you sell the stock? What would your return have been had you purchased the stock without margin?
With margin?
Without margin?

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Answer #1

A) No. of share 1,000.00

Price 46

Value 46,000.00

Equity = Margin requirement 25000.00

Loan 21,000.00

Final price 50

Value 50,000.00

Less: loan 21,000.00

Value of equity 29,000.00

Return with margin 16.00%

Without margin 8.70%

B) No. of share 1,000.00

Price 46

Value 46,000.00

Equity = Margin requirement 25000.00

Loan 21,000.00

Final price 44

Value 44,000.00

Less: loan 21,000.00

Value of equity 23,000.00

Return with margin -8.00%

Without margin -4.35%

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