Question

In the previous problem, what would your return have been had you purchased the stock without margin? (Do not round Intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) The text of the previous problem is copied here for your convenience: You purchase 550 shares of 2nd Chance Co stock on margin at a price of $55. Your broker requires you to deposit $15,500. Suppose you sell the stock at a price of $62. You just sold short 650 shares of Wetscope, Inc., a fledgling software firm, at $75 per share. You cover your short when the price hits $79 per share one year later. If the company paid $0.52 per share in dividends over this period, what is your rate of retum on the investment? Assume an initial margin of 55 percent. (Do not round Intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Answer 1

To calculate the return without margin, subtract the initial investment from the final sales revenue and divide it by the initial investment. In this case, the return would be 12.65%.

Step-by-step explanation:

To calculate the return without margin, we need to consider the initial investment and the final selling price. In the previous problem, you purchased 550 shares of 2nd Chance Co stock on margin at a price of $55. Your broker required you to deposit $15,500. If you had bought the same number of shares without margin, your initial investment would be $55 * 550 = $30,250. Since you sold the stock at a price of $62, your final sales revenue would be $62 * 550 = $34,100.

To calculate the return, we need to subtract the initial investment from the final sales revenue and divide it by the initial investment:

(Final Sales Revenue - Initial Investment) / Initial Investment * 100

(34,100 - 30,250) / 30,250 * 100 = 12.65%