Robin sold 800 shares of a non-dividend paying stock this morning for a total of $29,440. She had purchased these shares on margin nine months ago at a cost per share of $35. The initial margin requirement on this stock is 60% and the maintenance margin is 30%. Robin pays 1.2% over the call money rate of 4.9%. What is her total dollar return on this investment?

Question

Quizplus · Accepted Answer

Robin's total dollar return is calculated by finding the difference between the selling price and the purchase price, adjusting for the interest paid on the borrowed amount. She sold the shares for $29,440 and bought them for $28,000 (800 shares * $35). She borrowed 40% of the purchase price, which is $11,200, and paid interest on this amount for 9 months at an annual rate of 6.1% (4.9% + 1.2%). The interest paid is $11,200 * 6.1% * (9/12) = $510.59. Her total dollar return is $29,440 - $28,000 - $510.59 = $931.41.

Robin Sold 800 Shares of a Non-Dividend Paying Stock This