You purchase 950 shares of 2nd Chance Co stock on margin at a price of $43. Your

Question

You purchase 950 shares of 2nd Chance Co stock on margin at a price of $43. Your broker requires you to deposit $22.000. a. Suppose you sell the stock at a price of $47. 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.) Rate of Return With margin Without margin b. What is your return if the stock price is $41 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.) Rate of Return With margin Without margin

Explanation / Answer

Formula for:

With margin = Number of shares x (Selling Price-Purchase Price) / Deposit

Without margin = (Selling Price-Purchase Price) / Purchase price

.

a.

With margin = 950 x (47-43)/22000 = 17.27%

Without margin = (47-43)/43 = 9.30%

b.

With margin = 950 x (41-43)/22000 = -8.64%

Without margin = (41-43)/43 = -4.65%

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