a) When you pay cash for stock you end up paying entire stock price . Therefore you had paid $45 for each stock 2 years before
Current stock price = $50
or 45*(1+r)^2 = 50
or (1+r)^2 = 50/45
or r = sqrt(50/45) -1
or r = 0.05409255 or r =5.41%
b)When the margin is 70% your broker ends up paying 30 % for you
Price paid by you = 70% *45 = 31.5
Price paid by your broker = 30% * 45 =13.5
Current price of share = 50
Profit made per share = 50-45 =5
So you paid 31.5 and received a profit of 5
Therefore 31.5*(1+r)^2 = 31.5+ 5
or, 31.5 *(1+r)^2 = 36.5
or, r = 0.0764432 = 7.64%
Two years ago, you bought 300 shares of Kayleigh Milk Co. for $45 a share with...
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