Explore BrainMass

Explore BrainMass

    Rate of return-Buying stock on margin

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Ed Delahanty purchased 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.

    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?

    At the end of the year, if Ed sold the Niagara stock for $20 per share, what would Ed's rate of return be for the year?

    Recalculate your answers for (1) and (2) assuming that Ed made the Niagara stock purchase for cash instead of on margin.

    © BrainMass Inc. brainmass.com June 3, 2020, 7:43 pm ad1c9bdddf
    https://brainmass.com/business/modified-internal-rate-of-return/rate-of-return-buying-stock-on-margin-110477

    Solution Preview

    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 $1per 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

    ADVERTISEMENT