Question 4 (10 Points) (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?

(ii). An investor sells 250 shares short at $28. The sale requires a margin deposit equal to 55 percent of the proceeds of the sale.

a) If the investor closes the position at $37, what was the percentage earned or lost on the investment?

b) If the position had been closed when the price of the stock was $22, what would have been the percent earned or lost on the position?