A buyer buys stock on margin and holds the position for exactly one year, during which time

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A buyer buys stock on margin and holds the position for exactly one year, during which time the stock pays a dividend. For simplicity, assume that the interest on the loan and the dividend are both paid at the end of the year. image text in transcribed

1. What is the total return on this investment?
2. Why is the loss greater than the 25 percent decrease in the market price?

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Investments Principles Of Portfolio And Equity Analysis

ISBN: 9780470915806

1st Edition

Authors: Michael McMillan, Jerald E. Pinto, Wendy L. Pirie, Gerhard Van De Venter, Lawrence E. Kochard

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Question Posted: Mar 21, 2024 07:00 AM

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A buyer buys stock on margin and holds the position for exactly one year, during which time

Question:

Purchase price Sale price $20/share $15/share Shares purchased 1,000 2.5 Leverage ratio Call money rate Dividend Commission 5% $0.10/share $0.01/share

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1 To find the return on this investment first determine the initial equity and then determine the eq...View the full answer

Investments Principles Of Portfolio And Equity Analysis

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