We can use this equation to compute either the expected or the actual return from

a margin transaction. To illustrate: Assume you want to buy $100$ shares of stock at $$50$

per share because you feel it will rise to $$75$ within $6$ months. The stock pays $$2$ per

share in annual dividends, and during your $6-$month holding period, you will receive

half of that amount, or $$1$ per share. You are going to buy the stock with $50\%$ margin

and will pay $10\%$ interest on the margin loan. Therefore, you are going to put up

$$2,500$ equity to buy $$5,000$ worth of stock that you hope will increase to $$7,500$ in

$6$ months. Because you will have a $$2,500$ margin loan outstanding at $10\%$ for

$6$ months, you will pay $$125$ in total interest costs $($$$2,5000\mathrm{.}10\frac{6}{12}=$$$125).$ We

can substitute this information into Equation $2\mathrm{.}2$ to find the expected return on invested

capital from this margin transaction: