An investor buys $18 thousand dollars of ABT stock at $20 per share, using 54% initial...

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An investor buys $18 thousand dollars of ABT stock at $20 per share, using 54% initial margin. The broker charges 7% APR comp

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Answer 1

Answer #1

Own investment = $18,000 * 54% = $9,720.
Borrowed from broker = $18,000 - $9720 = $8,280.

EAR = (1 + 7%/365)^365 - 1 = 1.0725 - 1
= 0.0725 or 7.25%

Number of Shares = $18,000/ $20 = 900

Value of Stock in 1 year = 900 * $25 = $22,500

Dividends recieved = 900 * $0.83 = $747

Interest due = $8,280 * 7.25% = $600.30

Ending Account Balance = $22,500 + $747 - $600.30 - $8,280 = $14,366.70

Investor's rate of return = ($14,366.70 / $9,720) - 1
= 47.81%

Investor's rate of return = 47.81%

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Answer 2

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