You decide to purchase 7,000 Cobtom shares at $6.50 each using a 40% margin loan. Over the next year the price of the shares goes up to $8.40 each, and you receive dividends of $0.40 per share. The interest rate on the margin loan is 10% pa payable annually.

a How much equity have you initially invested?

b How much have you borrowed?

c What is the new value of the holding at the end of the year?

d What is your total profit in dollar terms?

e What is your annual rate of return on invested capital?