Looking back at Problem 12, suppose the call money rate is 5 percent and your broker charges

Question:

Looking back at Problem 12, suppose the call money rate is 5 percent and your broker charges you a spread of 1.25 percent over this rate. You hold the stock for six months and sell at a price of $65 per share. The company paid a dividend of $0.25 per share the day before you sold your stock. What is your total dollar return from this investment? What is your effective annual rate of return?

Data From Problem 12

You’ve just opened a margin account with $20,000 at your local brokerage firm. You instruct your broker to purchase 500 shares of Landon Golf stock, which currently sells for $60 per share. What is your initial margin? Construct the equity account balance sheet for this position.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Broker
A broker is someone or something that acts as an intermediary third party, managing transactions between two other entities. A broker is a person or company authorized to buy and sell stocks or other investments. They are the ones responsible for... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...