Question

You purchase 850 shares of 2nd Chance Co. stock on margin at a price of $39. Your broker requires you to deposit $17000 a. Suppose you sell the stock at a price of $45. What is your return? What would your return have been had you purchased the stock without margin? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places) Rate of Return With margin Without margin b. What is your return if the stock price is $37 when you sell the stock? What would your return have been had you purchased the stock without margin? (A negatie ue shoul be ncatd by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Rate of Return With margin Without margin

Answer 1

(a): Terminal price = $45

With margin = [(45*850)-(39*850)]/17000

= 30.00%

Without margin = (45-39)/39

= 15.38%

(b): Here terminal price = $37.

With margin = [(37*850)-(39*850)]/17000

= -10.00%

Without margin = (37-39)/39

= -5.13%