Question
(i) An investor is considering buying XYZ Corp. stock on margin. His stockbroker informed him that 100 shares of XYZ Corp. cost $42 a share.
(i) An investor is considering buying XYZ Corp. stock on margin. His stockbroker informed him that 100 shares of XYZ Corp. cost $42 a share. The margin requirement was 60 percent with an interest rate of 4.5 percent on borrowed funds, and commissions on the purchase and sale were 4%. One year after the investor invested in stock XYZ corp. paid an annual dividend of $1.55 a share. The price of the stock also rose to $70 in one year.
a. What is the percentage earned on the investment if the stock is bought for cash (i.e., the investor did not use margin)?
b. What is the percentage earned on the investment if the stock is bought on margin?
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DeFi And The Future Of Finance
Authors: Campbell R. Harvey, Ashwin Ramachandran, Joey Santoro, Vitalik Buterin, Fred Ehrsam
1st Edition
1119836018, 978-1119836018
