Question

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

Answer 1

300% returns

150% returns

100% returns

Step-by-step explanation:

given data

stock sells = $10 per share

purchase = 100 shares

price rises = $17.50

solution

Profit per share is =17.5 - 10 = 7.5

Total profit is = 100 × 7.5 = 750

if here margin requirement is 25%

then here you invest = 100 ×10 × 25% = $250

Percent of return = Profit ÷ Capital

return % = (750 ÷ 250) × 100

and get return = 300%

and

if here margin requirement is 50%

then here you invest = 100 ×10 × 50% = $500

Percent of return = Profit ÷ Capital

return % = (750 ÷ 500) × 100

and get return = 150%

and

if here margin requirement is 75%

then here you invest = 100 ×10 × 75% = $750

Percent of return = Profit ÷ Capital

return % = (750 ÷ 750) × 100

and get return = 100%