An investor buys $20,000 worth of a stock priced at $25 per share using 80% initial margin. The broker charges 5% on the margin loan and requires a 40% maintenance margin. The stock pays a $0.40 per share dividend in one year and then the stock is sold at $35 per share. What was the investor's rate of return? 56.46% 50.75% 48.28% 46.56%

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
icon
Concept explainers
Topic Video
Question
2. An investor buys $20,000 worth of a
stock priced at $25 per share using 80%
initial margin. The broker charges 5% on
the margin loan and requires a 40%
maintenance margin. The stock pays a
$0.40 per share dividend in one year and
then the stock is sold at $35 per share.
What was the investor's rate of return?
56.46%
50.75%
48.28%
46.56%
Transcribed Image Text:2. An investor buys $20,000 worth of a stock priced at $25 per share using 80% initial margin. The broker charges 5% on the margin loan and requires a 40% maintenance margin. The stock pays a $0.40 per share dividend in one year and then the stock is sold at $35 per share. What was the investor's rate of return? 56.46% 50.75% 48.28% 46.56%
Expert Solution
steps

Step by step

Solved in 3 steps with 2 images

Blurred answer
Knowledge Booster
Stock Valuation
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education