Explore BrainMass

Explore BrainMass

    Holding period return in rising & declining of stock prices

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

    Rudolfo purchased 900 shares of stock for $62.20 a share six months ago. The initial margin requirement on this stock is 75 percent and the maintenance margin is 40 percent. Rudolfo pays a 3% on his margin loan, what is his holding period return if today when he sells it, stock price rises by 25%? What if the stock price declines by 25%? (note: 3% is annualized effective rate).

    © BrainMass Inc. brainmass.com April 3, 2020, 8:56 pm ad1c9bdddf

    Solution Preview

    If the stock rise by 25%

    Total Value of Shares = 900*62.20=55980
    Initial Margin (Equity investment)= 75%*55980=41985
    Loan Amount = 25%*55980=13995
    If stock price rises by 25%, new stock price = 62.20*(1+25%)=77.75
    Value of ...

    Solution Summary

    This post shows how to calculate holding period return in rising and declining of stock prices.