You purchased 300 shares of common stock on margin for $60 per share. The initial margin is 60%, and the stock pays no dividend. What would your rate of return be if you sell the stock at $45 per share? Ignore interest on margin.
A) 25.00%
B) -33.33%
C) 44.31%
D) -41.67%
E) -54.22%

Question

Quizplus · Accepted Answer

The initial investment is 60% of the total value, so for 300 shares at $60 each, the total value is $18,000, and the initial investment is 0.6 * $18,000 = $10,800. Selling at $45 per share, the total value is 300 * $45 = $13,500. The loss is $18,000 - $13,500 = $4,500. The rate of return is the loss divided by the initial investment: $4,500 / $10,800 = -41.67%.

You Purchased 300 Shares of Common Stock on Margin for $60