Question

Seven months ago, you purchased 400 shares of stock on margin. The initial margin requirement on your account is 60 percent and the maintenance margin is 30 percent. The call money rate on the margin loan is 6.65 percent. The purchase price was $16 a share. Today, you sold these shares for $18.00 each. What is your annualized rate of return?

Answer 1

Answer:

36.19%

Explanation:

The value of stock purchase=400*$16=$6400

Initial margin=60%*$6400 =$3840

margin loan=$6400 -$3840 =$2560

interest on margin loan=$2560 *6.65%*7/12=$99.31  

return on the sale of shares=($18*400)-$6400 -$99.31=$700.69

seven-month return=$700.69 /$3840 =18.25%

annualized return=(1+18.25% /7)^12-1=36.19%