Problem: Ed Delahanty purchased 500 shares of Niagara Corporation stock on margin at the beginning of the year for $30 per share. The initial margin requirement was 55%. Ed paid 13% interest on the margin loan and never faced a margin call. Niagara paid dividends of $1 per share during the year.
- At the end of the year, if Ed sold the Niagara stock for $40 per share, what would Ed's rate of return be for the year?
- At the end of the year, if Ed sold the Niagara stock for $20 per share, what would Ed's rate of return be for the year?
- Recalculate your answers for questions (1) and (2) and assume that Ed made the Niagara stock purchase for cash instead of on margin.