Question

You purchased 100 shares of common stock on margin for $35 per share. The initial margin is 60%, and the stock pays no dividend. What would your rate of return be if you sell the stock at $30 per share

Answer 1

Rate of Return=-23.80%

Step-by-step explanation:

Calculation for the rate of return

First step is to calculate the investment

Investment=100($35 per share )(0.60)

Investment= $2,100

Second step is to calculate gain on stock sale

Loss on stock sale = ($30 - $35)(100)

Loss on stock sale = -$500

Last step is to calculate the rate of return

Using this formula

Rate of Return =Loss on stock sale/Investment

Let plug in the formula

Rate of Return=(-$500/$2,100)

Rate of Return = -0.2380*100

Rate of Return=-23.80%

Therefore the Rate of Return will be -23.80%