An investor bought 100 shares of Copier Corp. on margin for $85 a share. The firm paid an annual dividend of $4 a share; the margin requirement was 60 percent with an interest rate of 8 percent on borrowed funds, and commissions on the purchase and sale were $75. The price of the stock rose to $120 in one year.

a. What is the percentage earned on the investment if the stock is bought for cash (i.e., the investor did not use margin)?

b. What is the percentage earned on the investment if the stock is bought on margin?

Question

An investor bought 100 shares of Copier Corp. on margin for $85 a share. The firm paid an annual dividend of $4 a share; the margin requirement was 60 percent with an interest rate of 8 percent on borrowed funds, and commissions on the purchase and sale were $75. The price of the stock rose to $120 in one year. 
 ​ 
 a. What is the percentage earned on the investment if the stock is bought for cash (i.e., the investor did not use margin)? 
 ​ 
 b. What is the percentage earned on the investment if the stock is bought on margin?

Quizplus · Accepted Answer

The Answer of An investor bought 100 shares of Copier Corp. on margin for $85 a share. The firm paid an annual dividend of $4 a share; the margin requirement was 60 percent with an interest rate of 8 percent on borrowed funds, and commissions on the purchase and sale were $75. The price of the stock rose to $120 in one year. 
 ​ 
 a. What is the percentage earned on the investment if the stock is bought for cash (i.e., the investor did not use margin)? 
 ​ 
 b. What is the percentage earned on the investment if the stock is bought on margin?

An Investor Bought 100 Shares of Copier Corp