Question

You purchase 120 shares for $60 a share (57.200), and after a year the price falls to $50. Calculate the percentage return on your investment if you bought the stock on margin and the margin requirement was 25 percent."

a) -60%
b) -40%
c) -20%
d) -80%

Answer 1

To calculate the percentage return on your investment, subtract the final value from the initial investment, divide it by the initial investment, and multiply by 100%. The correct answer is -20%.

Step-by-step explanation:

To calculate the percentage return on your investment, we need to first calculate the initial investment and the final value of the investment.

Given that you bought 120 shares for $60 a share, and the margin requirement was 25%, you would have paid $60 x 120 = $7,200 for the shares, with a margin of 25% of $7,200, which is $1,800.

After a year, the price falls to $50 per share. So the final value of your investment would be $50 x 120 = $6,000.

The percentage return on your investment is calculated by taking the difference between the final value and the initial investment, dividing it by the initial investment, and then multiplying by 100%.

So, the percentage return on your investment would be (($6,000 - $7,200) / $7,200) x 100% = -20%. Therefore, the correct answer is c) -20%.