You purchase 900 shares of stock at a price of $45 and an initial margin of 60 percent. The call money rate is 6.3 percent and you pay a spread of 2.1 percent. One year later, you close your position at a stock price of $53. If the stock paid an annual dividend of $0.78 per share, what was your return?

Question

Quizplus · Accepted Answer

First, let's calculate the initial investment:

900 shares x $45 per share x 60% initial margin = $24,300

The remaining 40% is the loan from the broker, which is $16,200.

Next, let's calculate the interest expense for the year:

$16,200 x (6.3% + 2.1%) = $1,518.

Now, let's calculate the total return:

Proceeds from sale = 900 shares x $53 per share = $47,700

Dividends received = 900 shares x $0.78 per share = $702

Initial investment = $24,300

Interest expense = $1,518

Total return = ($47,700 + $702 - $24,300 - $1,518) / $24,300 = 0.2692, or 26.92%.

Therefore, the correct answer is choice B.

You Purchase 900 Shares of Stock at a Price of $45