Suppose you buy a round lot of HS Inc. stock on 55% margin when it is selling at $40 a share. The broker charges a 10 percent annual interest rate and commissions are 4 percent of the total stock value on both the purchase and the sale. If at year end you receive a $0.90 per share dividend and sell the stock for 35 5/8, what is your rate of return on the investment?
A)-35.17%
B)-21.84%
C)14.74%
D)21.84%
E)35.17%

Question

Quizplus · Accepted Answer

The correct answer is A because the rate of return on the investment is -35.17%. This is calculated by taking the total profit or loss on the investment, which is the difference between the sale price and the purchase price plus dividends, and dividing it by the initial investment. In this case, the total profit or loss is -$10.90 per share, and the initial investment is $22 per share, so the rate of return is -35.17%.

Suppose You Buy a Round Lot of HS Inc