Lauren purchases 500 shares of Walsh Corp. at the beginning of the year when the market...
Lauren purchases 500 shares of Walsh Corp. at the beginning of the year when the market price of those shares was $77.50. During the year she receives a dividend of $2.80 per share and sells the stock at the end of the year for $82.00 per share. Calculate Lauren's total percentage return on this investment if she: (a) pays for the shares in-full with cash; and, (b) uses the 60% margin her broker offers. Ignore commissions, interest charges and taxes
Homework Answers
Initial money = 500 *77.5 = 38750
Dividends received = 500 *2.8 = 1400
Ending value = 82* 500 = 41000
If she uses margin, initial investment = 38750 *60% = 23250
a) Return when she pays for the shares in-full with cash = (41000 + 1400 -38750) / 38750 = 9.42%
b) Return when uses the 60% margin her broker offers = ( 41000+ 1400 - 38750) / 23250 = 15.70%
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