Using your same brokerage account as in Problem 51 (same margin rate and transac- tion costs), assume

Fantastic news! We've Found the answer you've been seeking!

Question:

Using your same brokerage account as in Problem 5‐1 (same margin rate and transac- tion costs), assume that you buy IBM at $156 a share, on 60 percent margin. During the year, IBM pays a dividend of $1.30 per share. One year later, you sell the position at $233. Treat the brokerage cost to sell in calculating the gain or loss and the broker- age cost to buy as part of your investment.

Calculate the percentage return on your investment.

5‐1 You open a margin account at Chas Pigeon, a discount broker. You subsequently short Exciting.com at $286, believing it to be overpriced. This transaction is done on mar- gin, which has an annual interest rate cost of 9 percent. Exactly one year later Exciting has declined to $54 a share, at which point you cover your short position. You pay brokerage costs of $20 on each transaction you make