Suppose the call money rate is 4.5 percent, and you pay a spread of 2.5 percent

Question

Suppose the call money rate is 4.5 percent, and you pay a spread of 2.5 percent over that. You buy 600 shares of stock at $78 per share. You put up $18,000. One year later, the stock is selling for $86 per share, and you close out your position. What is the percent of your return assuming a dividend of $.85 per share is paid? Suppose the call money rate is 4.5 percent, and you pay a spread of 2.5 percent over that. You buy 600 shares of stock at $78 per share. You put up $18,000. One year later, the stock is selling for $86 per share, and you close out your position. What is the percent of your return assuming a dividend of $.85 per share is paid? Suppose the call money rate is 4.5 percent, and you pay a spread of 2.5 percent over that. You buy 600 shares of stock at $78 per share. You put up $18,000. One year later, the stock is selling for $86 per share, and you close out your position. What is the percent of your return assuming a dividend of $.85 per share is paid?

Explanation / Answer

Funds Invested 600 x 78 = 46800 Less: Own Funds 18000 Debt funds 28800 Interest Rate (4.5%+2.5%) 7% Interest amount paid 2016 Closing value 600 x 86 = 51600 Dividend amount = 0.85 x 600 510 Net cashflows (i) Net funds invested in cash - own funds 18000 Add: Debt funds (Amount invested) 28800 Less: Debt funds (Amount Borrowed) 28800 Net funds invested in cash - 18000 (ii) Net Return Ending value 51600 Less: Net funds invested 18000 Less: Debt Repaid 28800 Less: Interest Paid 2016 Add: Dividend 510 3294 Return = 3294/18000 x 100 = 18.30%

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.