Question

1. A stock sells for $10 per share. You purchase 100 shares for $10 a share (i.e., for $1,000), and after a year the price rises to $17.50. What will be the percentage return on your investment if you bought the stock on margin and the margin requirement was (a) 25 percent, (b) 50 percent, and (c) 75 percent? (Ignore commissions, dividends, and interest expense.)

Please show how to solve in Excel Step-by-Step.

Answer 1

Particulars		Details
Quantity	100
Buy price	$10
Sales price	$17.50
Profit per share	7.5	17.5-10
Total profit	750	100*7.5
Case a	Amount in $
Margin	25%
Margin Amount	250	100*10*25%
Percent of return=Profit/Capital
Return percent	300	(750/250)*100
Case b
Margin	50%
Margin Amount	500	100*10*50%
Percent of return=Profit/Capital
Return percent	150	(750/500)*100
Case c
Margin	75%
Margin Amount	750	100*10*75%
Percent of return=Profit/Capital
Return percent	100	(750/750)*100