Two months ago, Trevor purchased 500 shares of stock at a cost per share of $74.20. The purchase was made on margin with an initial margin requirement of 65 percent. Trevor pays 1.6 percent over the call money rate of 4.8 percent. What will his total dollar return be on this investment if he sells his shares today at a price per share of $73.40? Ignore dividends.

Question

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First, we need to calculate how much Trevor borrowed to make the purchase. Since the initial margin requirement was 65%, he paid 35% of the purchase price upfront (0.35 x 500 x $74.20 = $12,977.50) and borrowed the rest ($24,055).

Next, we need to calculate how much interest Trevor paid on the margin loan. The call money rate is 4.8%, and he pays 1.6% over that, so his interest rate is 6.4%. For two months, this means he paid 2/12 x 6.4% x $24,055 = $256.92 in interest.

Now we can calculate his total cost: 
- Cost of shares: 500 x $74.20 = $37,100 
- Upfront payment: $12,977.50 
- Interest paid: $256.92 
Total cost = $50,334.42

Finally, we can calculate his total return: 
- Sale price: 500 x $73.40 = $36,700 
- Profit (loss) on shares: $36,700 - $37,100 = -$400 
- Interest paid: $256.92 
Total return = -$143.08

Since Trevor's total return is negative, he incurred a loss on this investment. The closest answer choice to -$143.08 is C, -$534.95.

Two Months Ago, Trevor Purchased 500 Shares of Stock at a Cost