Suppose you purchase 1,100 shares of stock at $49 per share with an initial cash investment of $18,000. The call money rate is 5 percent and you are charged a 1.5 percent premium over this rate.
a. Calculate your return on investment one year later if the share price is $57. Suppose instead you had simply purchased $18,000 of stock with no margin. What would your rate of return have been now?
b. Calculate your return on investment one year later if the share price is $49. Suppose instead you had simply purchased $18,000 of stock with no margin. What would your rate of return have been now?
c. Calculate your return on investment one year later if the share price is $33. Suppose instead you had simply purchased $18,000 of stock with no margin. What would your rate of return have been now?