Question

An investor purchased on margin Orange Computer for $30 a share. The stock's price subsequently increased to $50 a share at which time the investor sold the stock. If the margin requirement were 60 percent and the interest rate on borrowed funds were 7 percent, what would be the percentage earned on the investor's funds (excluding commissions)

Answer 1

Answer:

A. 104%

B. 66.7%

Explanation:

A. Calculation for what would be the percentage return earned

Percentage return =($50-$30-30*60%*7%)/30*60%

Percentage return(20-$18*.07)/18=

Percentage return=1.04*100

Percentage return=104%

Therefore what would be the percentage return earned is 104%

B. Calculation for What would have been the return if the investor had notbought the stock on margin

Percentage return=($50-$30)/$30

Percentage return=$20/$30

Percentage return=66.67 %

Percentage return=66.7% Approximately

Therefore What would have been the return if the investor had notbought the stock on margin is 66.7%