Question

You've just opened a margin account with $25,970 at your local brokerage firm. You instruct your broker to purchase 700 shares of Landon Golf stock, which currently sells for $53 per share. Suppose the call money rate is 5 percent and your broker charges you a spread of 1.5 percent over this rate. You hold the stock for six months and sell at a price of $60 per share. The company paid a dividend of $0.60 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.) Dollar returnſ 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.) Effective annual return

Answer 1

10 Margin Amount: $ 25, 970. 4. Amount spent on Purchase a 700 shares x $53 2$ 37, 100 3. Charges paid to Brokee . I call money eate + spread & Purchase krice 5.%. +1:54. 26.5%. - 6.51.937, 100 a $2,411.50. 4, Amount earned on selling 2 >700 shaxs x $.60 . $426.000 S. Dindend Received z Zobshases x$0.60 · 490. is total dollar serun, Anounc seguretat on sale q shaces 9 Investment + Bindend Received Amount spent on Puchase charges paid to Broker 4,98 $'37.com - $22.411:50. 1 = $2.908.50 ; $f 42.000

Page No. DateT $ 39, SIL-SO. → Seffective have Thetuene cotel sellae Notional Interest on Luun 9 investment Mareno Amountxiao Amount Speut . Amount spente kmaunt spent on + chargee paid to Brokee Purchase __ ? $ 37,100 to $240.50 - = $ 39, 511-50. • Nahonal Intelston Margin Amrutx commonly F Malgia Anoint AT 2 Nchenal Interest is subtracted from total doilee Seturn 9 Investment because, an opposiunery to earn 6 month's binterest on that amount is lost. Hence, it is treated as an opportunity cost for 6 months - $ 85,970 X 56 X6 * $649.45 uene $2.908.5o - $ 649 25 x 100 $39,511.50 59.5 x 100.25 $ 39,51:50 5.71796.7. 5-779614 Now, that is effective care o suthen for 6 months Therefore annual rate of return will bez (itin - 1 where i = 5. 71796 r.. h ne number of a compounding felt D'0571496 - L = 0.058 2 5.80% in effech ve annual salgs 5.802 Renien 12