You purchase 800 shares of stock at a price of $102 and an initial margin of 50 percent. The call money rate is 5.2 percent and you pay a spread of 1.7 percent. A year later, you close your position at a stock price of $94. With an annual dividend of $1.80 per share, what was your return?
A) - 14.32%
B) - 22.59%
C) - 19.06%
D) - 6.08%
E) - 12.64%

Question

Quizplus · Accepted Answer

Initial purchase cost = 800 x $102 = $81,600
Initial margin = 50% x $81,600 = $40,800
Therefore, loan amount = $40,800

Interest on loan = ($40,800 x 5.2%) + 1.7% = $2,133.60
Dividend received = 800 x $1.80 = $1,440

Closing price = 800 x $94 = $75,200
Profit/loss on sale = $75,200 - $81,600 = -$6,400

Adjusting for interest and dividend:
Total return = -$6,400 - $2,133.60 + $1,440 = -$7,093.60

Percentage return = (-$7,093.60/$40,800) x 100% = - 17.36%
Therefore, the closest option is (C) -19.06%

You Purchase 800 Shares of Stock at a Price of $102