question archive Suppose that you buy 250 shares of a stock at $40 per share using your margin account
Suppose that you buy 250 shares of a stock at $40 per share using your margin account
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Suppose that you buy 250 shares of a stock at $40 per share using your margin account. Your brokerage firm allows you to trade on margin with 60% equity. You close your position at $45 per share. How much is your return? Assume no dividend is paid and the interest rate charged by the broker is 0%.
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Step 1 Initial Investment
Noof Share Purchased 250 Sharee * $ 40 per shere * % of Margin 60%=
=250*40*60%
=6000
Step 2: Profit on trading
= (Closing Price - Purchase price - Brokerage fee )*No Shares
=($45-$40)*250
=5*250
=1250
Step 3 how Much is Return
formul = Profit (Profit And Diviudend + Bonus )/Initial Investment *100
= $ (1250/ 6000) *100
=20.833%
Assument No Dividend provided And Brokerage Charge
if Broker fee We have to - from Profit
