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Suppose you buy 200 shares of stock XYZ at $10 a share with a margin of 50%. You also buy 200 shares of stock ABC
- Suppose you buy 200 shares of stock XYZ at $10 a share with a margin of 50%. You also buy 200 shares of stock ABC at $50 a share using a margin of 60%. Six month later, the price of the first stock is $15, and the price of the second stock is $45. If stock XYZ pays a $2 dividend a year and if the broker charges you an 10% margin loan interest, calculate the return for your portfolio. (Hint: when there are more than one stocks, we simply sum up the dividend, the interest expense, sale-purchase, and equity and plug these values into the same formula for calculating returns.)
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