INSTRUCTIONS: SUBMIT SOFT COPY OF YOUR ANSWERS ON MOODLE

CASE STUDY

Two of your acquaintances (Mercy and Dennis) approach you seeking investment advice. Each of them had K100 000 of savings to invest. Both invested in LSK Ltd shares which were trading at K20 per share. Mercy used her entire savings to purchase LSK Ltd shares. Dennis felt that LSK Ltd shares would perform well so he approached a broker and took up a margin transaction with a 55% initial requirement. The broker charged Dennis 10% annual interest, and commissions of 3% of the total stock value on both the purchase and sale. The dividend at the end of year was K0.50 per share and the shares trade at K27 at the end of the year.

Required:

1. How many shares did Mercy buy?
2. How many shares did Dennis buy?
3. Calculate Mercys percentage return on investment. D. Calculate Denniss percentage return on investment.

E. Who made a better investment decision?