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Stock Essay

A stock sells for $10 per share. You purchase 100 shares for $10 a share (i.e., for $1000), and after a year the price rises to $17.50. What will be the percentage return on your investment if you bought the stock on margin and the margin requirement was (a) 25 percent, (b) 50 percent, and (c) 75 percent? (Ignore commissions, dividends, and interest expense.)

Initial Stock price per share$10
# of Shares Purchased 100
New Stock price per share $17.50

Gain= New Price – Initial Price
$750.00 = ($17.50 x 100) – ($10 x 100)

Purchase Price =Initial Stock price per share x # of Shares Purchased
$1,000

FORMULA:
Percentage Return =Gain
(Margin Requirement x Purchase Price)

SOLUTION to (a):
300%$750.00
$250.00

SOLUTION to (b):
150%$750.00
$500.00

SOLUTION to (c):
100%$750.00
$750.00


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