Answer:
The correct answer is option (C).
Explanation:
According to the scenario, the given data are as follows:
Purchase of common stock = 250 shares
Rate per share = $25
Initial margin = 65%
Sale rate per share = $32
So, we can calculate rate of return by using following method:
First we calculate total investment,
Investment = Purchase of common stock × Rate per share × Initial margin
= 250 × $25 × 65%
= $4062.5
As, initial margin is of 65%, it means there is 35% loan, then
Loan amount = Purchase of common stock × Rate per share × Loan percentage
= 250 × $25 × 35%
= $2187.5
Now, we calculate the sale value after paying the loan amount
Sale value ( after paying loan ) = (Purchase of common stock × Sales Rate per share) - Loan amount
= (250 × $32) - $2187.5
= $5812.5
So, Rate of return = (Sales price - Investment ) ÷ Investment
= ($5812.5 - $4062.5) ÷ $4062.5
= 43.08%
= 43% ( approx.)
Hence, the rate of return is 43%.