You purchase 1,000 shares of 2nd Chance Co. stock on margin at a price of $45. Y

Question

You purchase 1,000 shares of 2nd Chance Co. stock on margin at a price of $45. Your broker requires you to deposit $22,500.

a. Suppose you sell the stock at a price of $53. What is your return? What would your return have been had you purchased the stock without margin? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

b. What is your return if the stock price is $44 when you sell the stock? What would your return have been had you purchased the stock without margin? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Explanation / Answer

1.
With margin: Return=(1000*53-1000*45)/22500=35.56%
Without margin: Return=(1000*53-1000*45)/45000=17.78%

2.
With margin: Return=(1000*44-1000*45)/22500=-4.44%
Without margin: Return=(1000*44-1000*45)/45000=-2.22%

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