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Margin questions

Use the information below for the following 2 problems
You decide to sell 100 shares of Davis Industries short when it is selling at its yearly high of 32 1/4. Your broker tells you that your margin requirement is 55 percent and that the commission on the sale is $55. While you are short, Davis pays a $0.75 per share dividend. At the end of one year you buy your Davis shares (cover your short sale) at 28 3/8 and are charged a commission of $45 and a 9 percent interest rate. What is your dollar return on the investment?

a. $130.50
b. $81.89
c. $100.00
d. $1,773.75
e. $3,500.00

What is your rate of return on the investment?
a. 4.48%
b. 2.87%
c. 3.98%
d. 4.62%
e. 8.87%
Please show calculations. Thanks!

Solution Preview

1. Dollar return = Total return - Repurchase cost - Transaction cost - interest
Total return = Beginning market value - dividends
= 100 X (32.25-0.75) ...

Solution Summary

The solution explains some questions relating to purchasing shares on margin