Question: An investor bought 100 shares on margin for $85 a share. The firm paid an annual dividend of $4 a share; the margin requirement was

An investor bought 100 shares on margin for $85 a share. The firm paid an annual dividend of $4 a share; the margin requirement was 60 percent with an interest rate of 8% on borrowed funds, and commissions on the purchase and sale were $75. The price of the stock rose to $120 in one year.

Required:

A.) What is the percentage earned on the investment if the stock is bought for cash (i.e., the investor did not use margin)?

B.) What is the percentage earned on the investment if the stock is bought on margin?

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