Harry bought 100 shares of stock at a price of $48 a share. He used his 60% margin account to make the purchase. Harry sold his stock after a year for $40 a share. Ignoring margin interest and trading costs, what is Harry's return on investor's equity for this investment?

Question

Quizplus · Accepted Answer

Harry's initial investment was 60% of the total cost, so he invested 60% of $4800 (100 shares * $48/share) = $2880. He sold the shares for $4000 (100 shares * $40/share), losing $800 ($4800 - $4000). The return on his investment is the loss divided by his initial investment: $800 loss / $2880 initial investment = -27.78%, which rounds to -28%.

Harry Bought 100 Shares of Stock at a Price of $48