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rate of return

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You are bullish on Avusa stock. The current market price is $50 per share, and you have $5000 of your own to invest. You borrow an additional R5000 from your broker at an interest rate of 8% per year, and invest $10 000 in the stock.

1.What will be your rate of return if the price of Avusa stock goes up b 10%?

2.How far does the price of Avusa stock have to fall for you to get a margin call if the maintenance margin is 30%? Assume the price fall happens immediately.

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Solution Preview

1. P0=$50
Total Investment =$10000
No of share bought = 10000/50=200
P1=50*(1+10%)=$55.00

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Solution Summary

This posting offers help with calculating rate of return.

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