Tom and Mary have each decided to buy 100 shares of a high performing Internet stock. The current price of the stock is $240 per share. Tom places a market order while Mary has decided to place a limit order at $230 per share. One week later, the price of the stock never did decline but rose steadily to $305 per share.
1. Assume that you buy the stock on margin paying $80 per share and borrowing the rest from your broker at 8.0% annual interest. You hold the stock for one year and then sell it for $150 per share. Calculate your return on the stock. (Just for Reference)
Rework question 1 again but assume that you instead decide to use your personal funds rather than buying on margin to make the stock purchase. Determine what the return on your stock is. Show all work. Check figure: R=29.17%.