Repeat Problem 1 to determine the percentage return on your investment but in this case suppose the price of the stock falls to $40 per share. What generalization can be inferred from your answers to Problems 1 and 2?
Problem 1
You purchase 100 shares for $50 a share ($5,000), and after a year the price rises to $60. What will be the percentage return on your investment if you bought the stock on margin and the margin requirement was
(a) 25 percent,
(b) 50 percent, and
(c) 75 percent? (Ignore commissions, dividends, and interest expense.)