You can buy stocks on margin by borrowing from your broker


You can buy stocks on margin by borrowing from your broker on a margin account with 60% initial and maintenance margin. You utilize your margin account maximally. You buy 1,000 shares of a stock valued at 10$ per share in year 0. In year 1, you first receive a dividend of 2$ per share, and then you sell 700 of your shares at an ex-dividend price of 11$ per share. In year 2, you first receive another dividend of 1$ per share, and then you sell the remaining shares at an ex-dividend price of 8$ per share. What is the 2-year return on your capital? Assume the cash proceeds are kept in the margin account with zero interest rate.

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Financial Management: You can buy stocks on margin by borrowing from your broker
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