Question: John Warren purchased 500 shares of Hannoush Jewelers stocks on margin at the beginning of the year for $30 per share. The initial margin requirement was 55%. John paid 13% interest on the margin loan and never faced a margin call. Hannoush Jewelers paid dividends of $1 per share during the year.
1. At the end of the year, if John sold the Hannoush Jewelers stock for $40 per share, what would John's rate of return be for the year?
2. At the end of the year, if John sold the Hannoush Jewelers stock for $20 per share, what would John's rate of return be for the year?
3. Recalculate your answers for (1) and (2) assuming the John made the Hannoush Jewelers stock purchase for cash instead of on margin.