Question

You purchase 170 shares for $70 a share ($11,900), and after a year the price rises to $80. Calculate the percentage return on your investment if you bought the stock on margin and the margin requirement was (ignore commissions, dividends, and interest expense):

15 percent. Round your answer to one decimal place.

45 percent. Round your answer to one decimal place.

80 percent. Round your answer to one decimal place.

Answer 1

see below

Explanation:

170*70=11900

after one year 170*80 = 13600
gain on paper = 13600-11900 = 1700

80/70 = 1.14 so 14% if you had paid out of pocket

but then you bought on margin meaning you only used

15% of your money = 11900* 15% = 1785

but your gain was 1700, so your return = 1700/1785 = 95%

45% of your money = 11900* 45% = 5355

but your gain was 1700, so your return = 1700/5355 = 32%

85% of your money = 11900* 85% = 10115

but your gain was 1700, so your return = 1700/10115 = 17%