Suppose you buy a round lot of Altman Industries stock on 50% margin when it is selling at $35 a share.The broker charges a 10 percent annual interest rate and commissions are 5 percent of the total stock value on both the purchase and the sale.If at year end you receive a $1.00 per share dividend and sell the stock for $42.63,what is your rate of return on the investment?
A) 15.58%
B) 11.84%
C) 14.74%
D) 21.84%
E) 28.38%

Question

Quizplus · Accepted Answer

Rate of Return = Profit ¸ Initial Investment
Profit = Total Return - Initial Stock Value - Transaction Costs - Interest
 Tatal Return
$=$ Encling Market $V$ mulue $+$ Dndent
$$= 4263 + \$ 100 = 4363$$ 
Initial Stock Value = 35(100)= $3,500.00
Transaction Costs = .05 × 3,500 + (0.05)(4,263)= $388.15
Interest = (0.10)(0.50)($3,500)= $175.00
$ \therefore $  Profit = $4,363 - $3,500 - $175.00 - $388.15 = $299.85
 Intial investrment$=$ Marpin teposit + Iritial invertment
$$= .50 \times \$ 3,500 + .05 \times \$ 3,500 = \$ 1,925$$ $ \therefore $  Rate of Return = $299.85/$1,925 = 15.58%

Suppose You Buy a Round Lot of Altman Industries Stock