Dale the farmer and his brother Jake decide to sell the family farm. They will use the proceeds to invest in the stock market. As they can not agree on an investment choice, they split their money. Dale buys stock “bull” with his half million “bull” currently sells for $45 per share
STEP BY STEP SHOW:
A) What is Dale’s return if the stock price after one year is 35,43, or 53 dollars per share?
B) If Dale decides that he wants to earn money faster and his broker will allow him to buy on the margin. His broker requires a 50% initial margin and he charges a 3% annual fee on the loan amount. If Dale invests all that he can, what is Dale’s return if the stock price after one year is 35,43, or 53 dollars per share?
C) Jake is certain his brother is always wrong so he decides to short “bull”. His broker requires a 50% initial equity position, which does not gain interest. What is Jake’s return if the stock price after one year is 35,43, or 53 dollars per share?