Question

Luc Do purchased stocks for $6,000. He paid $4,000 in cash and borrowed $2,000 from the brokerage firm. He bought 100 shares at $60.00 per share ($6,000 total). The loan has an annual interest rate of 8 percent. Six months later, Luc Do sold the stock for $65 per share. He paid a commission of $120 and repaid the loan. What was the net profit?

Answer 1

Answer:His net profit is $300

Step-by-step explanation:

Total amount borrowed is $2000. The loan has an annual interest rate of 8 percent. It was borrowed for only six months. This amount of interest paid will be determined using the simple interest formula,

I = PRT/100

Where

P = principal = $2000

R = rate = 8%

T = time = 6 months = 0.5 years

I = interest

I = (2000× 8 × 0.5)/100 = 80

The interest that will be paid for $2000 is $80

Total amount paid back is 2000 + 80 = $2080

He bought 100 shares at $60.00 per share and the total is $6,000

He sold the stock for $65 per share. This means that the total amount for which he sold the stock is 65×100 = $6500.

To determine his profit, we would subtract the total amount paid back due to the loan, the commission and his initial cash from the total amount recovered from selling his stock.

It becomes

6500 - ( 2080 + 120 + 4000)

= 6500 - 6200 = 300

His net profit is $300