They already come with answers, but you need to come up with your additional/complementary explanations on why the answer is correct.

In each of the following, the starting price is $50 and the ending price is either $70 or $30 for a change of $20. What is the percentage return for each transaction? (This holding period return should not be confused with the annual return. Holding period returns do not consider how long the investor owned the stock. Annualized rates of return are covered in Chapter 10.) 1. You buy a stock for $50 and sell it for $70. 2. You buy a stock for $50 and sell it for $30. 3. You buy a stock on margin for $50 and sell it for $70; the margin requirement is 60 percent. 4. You buy a stock on margin for $50 and sell it for $30; the margin requirement is 60 percent. 5. You buy a stock on margin for $50 and sell it for $70. The margin requirement is 60 percent, and the interest rate on borrowed funds is 10 percent. 6. You sell a stock short for $50 and repurchase it for $70. 7. You sell a stock short for $50 and repurchase it for $30

1. The gain is $20; the percentage return is $20/$50 5 40%.

2. The loss is $20; the percentage return is ($20)/$50 5 240%

3. Since the margin requirement is 60 percent, you borrow (1 2 0.6)($50) 5 $20 and put up $30. While the gain remains $20; the percentage return is $20/$30 5 66.7%.

4. Since the margin requirement is 60 percent, you borrow (0.4)($50) 5 $20 and put up $30. The loss is $20; the percentage loss is ($20)/$30 5 66.7%.

5. Since the margin requirement is 60 percent, you borrow (0.4)($50) 5 $20 and put up $30. The gain on the stock is $20, but you have to pay interest of $2 (0.1 3 $20) on the $20 you borrowed. The percentage return is ($20 $2)/$30 5 60.0%.

6. The loss is $20; the percentage return is ($20)/$50 5 40%.

7. The gain is $20; the percentage return is $20/$50 5 40%.