Karen just purchased a stock costing $33 on margin, paying $23 and borrowing the remainder from a brokerage firm at 15 percent annual interest. The stock pays an annual dividend of $2. If Karensells the stock after one year at a price of $50, what is the return on the stock?
A) 27.60 percent
B) 82.61 percent
C) 76.09 percent
D) 58.70 percent
E) none of the above

Question

Quizplus · Accepted Answer

Karen paid $23 and borrowed $10 ($33 - $23) at 15% interest rate.

After one year, Karen received a dividend of $2.

She sold the stock at a price of $50.

Karen's total return is the sum of dividend, capital gain, and interest expense.

Dividend = $2 
Capital gain = $50 - $33 = $17 
Interest expense = $10 x 0.15 = $1.50

Total return = ($2 + $17 - $1.50) / $23 = 76.09%

Therefore, the correct answer is C.

Karen Just Purchased a Stock Costing $33 on Margin, Paying