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You are considering alternatives to investing $50,000 in a common stock trading at a price of $80 per share on the market. a) Cash account:
You are considering alternatives to investing $50,000 in a common stock trading at a price of $80 per share on the market. a) Cash account: calculate your % return on this investment (ROIC) for each of the following share prices one year later (ignoring dividends): (1) $95 and (2) $60 b) Margin account: if the broker requires a 50% initial margin, what does your account balance sheet (T-account) look like after you make this margin trading? Suppose that you pay a 1% spread over your broker's call money rate of 5% to borrow from your broker, calculate your % return on this margin investment (ROIC) for each of the following share prices one year later (ignoring dividends): (1) $95 and (2) $60
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