Suppose the call money rate is 6.8 percent, and you pay a spread of 1.9 percent

Question

Suppose the call money rate is 6.8 percent, and you pay a spread of 1.9 percent over that. You buy 800 shares at $37 per share with an initial margin of 30 percent. One year later, the stock is selling for $42 per share, and you close out your position. What is the percent of your return assuming no dividends are paid? Suppose the call money rate is 6.8 percent, and you pay a spread of 1.9 percent over that. You buy 800 shares at $37 per share with an initial margin of 30 percent. One year later, the stock is selling for $42 per share, and you close out your position. What is the percent of your return assuming no dividends are paid? Suppose the call money rate is 6.8 percent, and you pay a spread of 1.9 percent over that. You buy 800 shares at $37 per share with an initial margin of 30 percent. One year later, the stock is selling for $42 per share, and you close out your position. What is the percent of your return assuming no dividends are paid?

Explanation / Answer

Purchase price of Shares 37 Initial Spread @1.9% 0.70 Interest @ 6.8% on $37 2.52 Cost per Share 40.22 Sale price 42 Gain 1.78 %of return (1.78/37) 4.81%

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