22805775 55648235740937724380276 elSBN-97813056 Stephanie Chambers Ch. 12) Fall

Question

22805775 55648235740937724380276 elSBN-97813056 Stephanie Chambers Ch. 12) Fall 2017 9PM CST Chapter 11 Financial Planning Exercise 4 Calculating profits on margined and unmargined investments Claire Gerber wants to buy 100 shares of Google, which is seling in the market for $548.21 a share. Rather than ligudate all her savings, she decides to borrow through her broker at 5 percent a year. Assume that the margin requirement on common stock is 50 percent. If the stock rises to $635 a share over the next year, calculate the dollar profit and percentage return that Claire would earn if she makes the investment with 50 percent margin. Contrast these figures to what she'd make f she uses no maroin Calculate the dollar net profit. Round the answers to the nearest dollar without Margin with 50% Margin Calculate the return on investment. Round the answers to two deomal places. with 50% Margin without Margin

Explanation / Answer

Purchase pirce = 100 *548.21 = 54,821

Own funds = 0.5* 54,281 = 27,410.50

Margin funds = 0.5*54,281 = 27,410.50

Interest with margin = 27,410.50 *1.05 = 28,781.025

Value after an year = 635 *100 = 63,500

Profit without Margin = 63500 - 54821 = $8,679

Profit with 50% Margin = 63500 -27410.50 - 28,781.025 = $7308.475 = $7,308 (Rounded)

Return on Investment

Without margin: 8,679/54,821 = 15.83%

With 50% Margin = 7308.475/27410.50 = 26.66%

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