A stock was purchased for $45 a share and sold ten months later for $48 a share. If the shares were purchased totally with cash the holding period return would be ________% as compared to ________% if the purchase was made using 70% margin. Ignore trading costs and margin interest.

Question

Quizplus · Accepted Answer

The holding period return when purchased with cash is ((48-45)/45)*100 = 6.67%. When purchased with 70% margin, the investor's equity is 30% of $45, so the return is ((48-45)/13.5)*100 = 9.52%.

A Stock Was Purchased for $45 a Share and Sold