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Stock on margin and the margin requirement

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Problem 1: You purchase 100 shares for $50 a share ($5,000), and after a year the price rises to $60. What will be the percentage return on your investment if you bought the stock on margin and the margin requirement was:

(a) 25 percent,

(b) 50 percent, and

(c) 75 percent? (Ignore commissions, dividends, and interest expense.) 

Problem 2: Repeat Problem 1 to determine the percentage return on your investment but in this case, suppose the price of the stock falls to $40 per share. What generalization can be inferred from your answers to Problems 1 and 2?

Reference no: EM131388336

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