What would have been the annual percentage returns

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Investor X bought of 100 shares of Goodstreet stock for $40 a share with cash. Investor Z also buys 100 shares of Goodstreet but uses margin. Each investor has holding period of one year, during which dividends of $3.5 a share is distributed. Commissions are 1.5 percent of the value of a purchase or sale; the margin requirement is 65 percent, and the interest rate is 7.5 percent annually on borrowed funds.

Problem 1: What is the percentage earned by each investor if he or she sells the stock after one year for (a) $32, (b) $52, and (c) $55? If the margin requirement had been 40 percent, what would have been the annual percentage returns? What conclusions do these percentage returns?

Reference no: EM132743532

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