Seven months ago, you purchased 400 shares of stock on margin. The initial margin requirement on your account is 60% and the maintenance margin is 30%. The call money rate is 4.8% and you pay 1.85% above that rate. The purchase price was $16 a share. Today, you sold these shares for $18.00 each. What is your annualized rate of return?

Question

Quizplus · Accepted Answer

The initial investment was $3,840 (60% of $6,400), and the loan was $2,560. The interest paid on the loan is $2,560 * (4.8% + 1.85%) * (7/12). The profit is ($18 - $16) * 400 - interest. The annualized rate of return is calculated based on the profit and initial investment over 7 months, annualized to 12 months.

Seven Months Ago, You Purchased 400 Shares of Stock on Margin