Paul wants to purchase 250 shares of Haliburton for $40 per share but borrows 50% on “margin” to finance part of the transaction. Answer the follow questions.
A) If Paul’s investment appreciates by 50 percent after one year, and she pays off her loan assuming an interest rate of 7 percent on the loan, how much will she make in dollars? What percent rate of return does this represent?
B) If Paul’s investment depreciates by 20 percent, how much will she lose in dollars assuming an interest rate of 7 percent on the loan? What percent rate of return does this represent?