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    Rate of return-Buying stock on margin

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    Ed Delahanty purchases 500 shares of Niagara Corporation stock on margin at the beginning of the year for $30 per share. The initial margin requirement was 55%.Ed paid 13%interest on the margin loan and never faced a margin call. Niagara paid dividends of $1 per share during the year.

    1 - At the end of the year, if Ed sold the Niagara stock for $40 per share, what would Ed's rate of return be for the year.
    2 - At the end of the year, if Ed sold the Niagara for $20 per share, what would Ed's rate of return be for the year?
    3 - Recalculate your answers for (1) and (2) assuming that Ed made the Niagara stock purchase for cash instead of on margin.

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    Ed Delahanty purchases 500 shares of Niagara Corporation stock on margin at the beginning of the year for $30 per share. The initial margin requirement was 55%.Ed paid 13%interest on the margin loan and never faced a margin call. Niagara paid dividends of $1 per share during the year.

    1 - At the end of the year, if Ed sold the Niagara stock for $40 per share, what would Ed's rate of return be for the year.
    2 - At the end of the year, if Ed sold the Niagara for $20 per share, what would Ed's rate of return be for the year?
    3 - Recalculate your answers for (1) and (2) assuming that Ed made the Niagara stock purchase for cash instead of on margin.

    Number of shares purchased= 500
    Price per share= $30
    Total ...

    Solution Summary

    The solution calculates rate of return for buying tocks on margin

    $2.19

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