General finance You purchased 300 shares of commonstock on margin for $60 per share. Theinitial margin is 60% and the stock pays nodividend. What would your rate of returnbe if you sell the stock at $45 per share?Ignore interest on margin.

Investment Rate of ReturnInvestment refers to putting your money in an asset to generate income (eg.…

Answered: You purchased 300 shares of common…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You purchased 300 shares of common stock on margin for $60 per share. The initial margin is 60% and the stock pays no dividend. What would your rate of return be if you sell the stock at $45 per share? Ignore interest on margin.
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You purchased 200 shares of ABC common stock on margin at $50 per share. Assume the initial margin is 50% and the maintenance margin is 30%. You will get a margin call if the stock drops below what price? (Assume the stock pays no dividends and ignore interest on the margin loan.)
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You purchased 250 shares of common stock on margin for $ 28 per share . The initial margin is 70 % and the stock pays no dividend but has a trading cost of $ 0.1 per share . Your rate of return would be if you sell the stock at $ 36 per share . Hgnore interest on margin
Suppose that you sell short 1,000 shares of Xtel, currently selling for $20 per share, and give your broker $15,000 to establish your margin account.a. If you earn no interest on the funds in your margin account, what will be your rate of return after one year if Xtel stock is selling at: (i) $22; (ii) $20; (iii) $18? Assume that Xtel pays no dividends.b. If the maintenance margin is 25%, how high can Xtel’s price rise before you get a margin call?c. Redo parts (a) and (b), but now assume that Xtel also has paid a year-end dividend of $1 per share. The prices in part (a) should be interpreted as ex-dividend, that is, prices after the dividend has been paid.
You sold short 200 shares of common stock at $60 per share. The initial margin is 65%. What would your rate of return be if you repurchase the stock at $80 per share. Ignore interest on the margin.
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Suppose the call money rate is 4.5 percent, and you pay a spread of 2.5 percent over that. You buy 1,200 shares of stock at $48 per share. You put up $37,440. One year later, the stock is selling for $60 per share and you close out your position. What is your return assuming a dividend of $0.24 per share is paid? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Rate of return %
An investor short sells 100 shares of a stock for £50 per share. The initial margin is 50%. With a maintenance margin of 30%, what is the stock price at which there will be a margin call? If rather than short selling the shares you buy them on margin, explain how the definition of the margin would change.
Suppose that you sell short 1000 shares of Xtel, currently selling for $50 per share, and give your broker $40,000 to establish your margin account. a. If you earn no interest on the funds in your margin account, what will be your rate of return after one year if Xtel stock is selling at: (i) $55; (ii) $50; (iii) $46? Assume that Xtel pays no dividends. (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.) b. If the maintenance margin is 25%, how high can Xtel’s price rise before you get a margin call? (Round your answer to 2 decimal places.) c. Redo parts (a) and (b), but now assume that Xtel also has paid a year-end dividend of $2 per share. The prices in part (a) should be interpreted as ex-dividend, that is, prices after the dividend has been paid. (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.)

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You purchased 300 shares of common stock on margin for $60 per share. The initial margin is 60% and the stock pays no dividend. What would your rate of return be if you sell the stock at $45 per share? Ignore interest on margin.