Question

You paid cash for $1,200 worth of stock a year ago. Today the portfolio is worth $1,642.

a. What rate of return did you earn on the investment? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

Rate of return              %

b. Now suppose that you bought the same stock but bought it on margin. The initial margin requirement was 70%. Recalculate your rate of return, ignoring any interest due. (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

Rate of return              %

c. Recalculate the rates of return for a cash purchase in the event that the stock is worth $900 today. (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

Rate of return              %

d. Recalculate the rates of return for a margin purchase in the event that the stock is worth $900 today. (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

Rate of return              %

Answer 1