Question

You purchased shares of Broussard Company using 50 percent margin; you invested a total of $20,000 (buying 1,000 shares at a price of $20 per share) by using $10,000 of your own funds and borrowing $10,000. Determine your percentage profit or loss if the stock price rises to $23 a share (ignore borrowing costs, dividends, and taxes).

Answer 1

Answer:

The percentage is of 22.5% if the stock price rises to $23 a share.

Explanation:

First you need to calculate the Total Earnings due to increase in price =[1000 *$23]-10000-10000

= $3000

Finally you calculate the Profit percentage(return) = Earnings / total investment + [50% * Earnings / total investment]

= 3000/20000 + 50%*(3000/20000)

= 15% + 7.5%

= 22.5%.