Question 11 (10 marks)

You would like to buy 200 shares of AAA Corporation which is currently selling for $x per share (x is calculated by multiplying the last digit of your student ID number by 10, if the last digit is zero, use 100). The initial margin is 60% and maintenance margin is 40%. Calculate how much money you would need to provide and how much you would borrow.

You sell the stock one year later after the price has increased by 30%. If the interest rate on a margin loan was 10% p.a. and the stock paid a dividend per share (DPS) of $2 during the year.

i) How much money would you have in your account after you sold the stock and repaid the loan?

ii) What is the rate of return on your investment?

iii) What would be the rate of return if no margin is used?

Note:

Include the following information in your answer o The initial price of the stock o The amount of money you would borrow o The amount in your account at the end of the year o The rate of return of your investment

To show your workings

When calculating the investment rate of return in %, show explicitly the amount you earned compared with the amount you invested.

Can anyone help me to calculate i)-iii)?