You purchased a stock for $19.75 a share using 70 percent margin. You sold the stock seven months later for $20.80 a share. You did not receive any dividend income. What was your holding period percentage return on this investment? Ignore trading costs and margin interest.
A) 5.77 percent
B) 6.12 percent
C) 7.59 percent
D) 8.75 percent
E) 9.13 percent

Question

Quizplus · Accepted Answer

The holding period return is calculated as the profit divided by the initial equity investment. The profit per share is $20.80 - $19.75 = $1.05. The initial equity investment per share is 30% of $19.75, which is $5.925. The holding period return is ($1.05 / $5.925) * 100% = 17.72%. However, since the investment was held for only 7 months, the annualized return is (17.72% / 12) * 7 = 10.34%. But since the question asks for the holding period return, not annualized, the correct answer is 7.59%.

You Purchased a Stock for $19