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 your percentage rate of return assuming no dividends are paid? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

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 your percentage rate of return assuming no dividends are paid? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Explanation / Answer

Initial Margin = 37*800*30%

Initial Margin = 8880

Interest Expenses = (6.8%+1.9%)*( 37*800 *(1-30%))= $ 1802.64

Dollar return = (42-37)*800 - 1802.64 = $ 2197.36

Rate of Return = Dollar return/Initial Margin

Rate of Return = 2197.36/8880

Rate of Return = 24.75%

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