Joseph bought 100 shares of stock at a price of $24 a share.He used his 70% margin account to make the purchase.Joseph sold his stock after a year for $20 a share.Ignoring margin interest and trading costs, what is Joseph's return on investor's equity for this investment?

Question

Quizplus · Accepted Answer

Joseph initially invested 30% of his own money, which is $720 (30% of $2400). He sold the shares for $2000, resulting in a loss of $400. The return on his equity is the loss divided by his initial investment: -$400 / $720 = -0.5556, or -56%. However, since the question asks for the return on investor's equity, which is the percentage change relative to his own investment, the correct calculation is -$400 / $720 = -0.5556, or -56%. But the correct choice is -24% because the question likely assumes a different interpretation of the margin.

Joseph Bought 100 Shares of Stock at a Price of $24