Question

Assume you just purchased 300 shares of Home Depot at $47.33 per share, and 50 percent of this was purchased on the margin." a. Determine your contribution to this transaction: Total cost Amount borrowed Contribution b. What would happen to your investment if the price of Home Depot stock rose to $61.58 per share ignoring any possible dividends)? Total value Loan Margin What was your profit? c. What would happen to your investment if the price of Home Depot stock fell to $36.96 per share (ignoring any possible dividends)? Total value a. Assume you just purchased 300 shares of Home Depot at $47.33 per share, and 50 percent of this was purchased on the margin", the amount of your contribution is $ 7099.5. (Round to the nearest cent.) b. If the price of Home Depot stock rose to $61.58 per share (ignoring any possible dividends), the total value of the investment would now be $ 18474.00. (Round to the nearest cent.) The loan amount is $ . (Round to the nearest cent.)

Answer 1

300 shares of home depot is purchased at $ 47.33 at 50% margin, so investor contribution amounts to $ 7099.5 .
As margin is 50%, investor would have got margin of $ 7099.5 from the broker. So loan amount is $ 7099.5

Next if price of stock increases to $ 61.58 per share then total value of investment will be $ 18,474 and loan amount will still be $ 7099.5 as we have used this much margin at time of purchase

If investor sells the share at current price the amount remaining with investor after paying margin or loan of $ 7,099.5 will be $ 11,374.5 .

Profit for investor is $ 4275 {$11374.5 - 7099.5 (personal investment) }

% of profit = 60.21% (4275/7099.5*100)

Loan amount is $ 7099.5
Profit amount is $ 4275
Profit % is 60.21%