A stock sells for Rs. 150 per share. You purchased 100 shares for Rs. 150 a share, and after a year the price rises to Rs. 175. Initial margin…
BBS Fundamentals of Investment · 2078 · Solved Question with Answer
A stock sells for Rs. 150 per share. You purchased 100 shares for Rs. 150 a share, and after a year the price rises to Rs. 175. Initial margin requirement was 60 percent.
a. What will be the percentage return on your investment if you bought the stock on margin? Ignore commissions, dividends, and interest expenses.
b. Determine the percentage return on your investment but in this case suppose the company pays dividend Rs. 15 per share and interest on loan is 10 percent per annum.
c. In calculating the return on investment you ignored commissions expenses. Describe how does commissions affect the return on your investment?