Ed Delahanty purchased 500 shares of Niagara Corporation stock on margin at the beginning of the year for $30 per share. The initial margin requirement was 55%. Ed paid 13% interest on the margin loan and never faced a margin call. Niagara paid dividends of $1 per share during the year. a. At the end of the year, if Ed sold the Niagara stock for $40 per share, what would Ed s rate of return be for the year? b. At the end of the year, if Ed sold the Niagara stock for $20 per share, what would Ed s rate of return be for the year? c. Recalculate your answers to parts (a) and (b) assuming that Ed made the Niagara stock purchase for cash instead of on margin.
Ed Delahanty purchased 500 shares of Niagara Corporation stock on margin at the beginning of the year for $30 per share. The initial margin requirement was 55%. Ed paid 13% interest on the margin loan and never faced a margin call. Niagara paid dividends of $1 per share during the year. a. At the end of the year, if Ed sold the Niagara stock for $40 per share, what would Ed s rate of return be for the year? b. At the end of the year, if Ed sold the Niagara stock for $20 per share, what would Ed s rate of return be for the year? c. Recalculate your answers to parts (a) and (b) assuming that Ed made the Niagara stock purchase for cash instead of on margin.
Chapter5: The Cost Of Money (interest Rates)
Section: Chapter Questions
Problem 5PROB
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Ed Delahanty purchased 500 shares of Niagara Corporation stock on margin at the beginning of the year for $30 per share. The initial margin requirement was 55%. Ed paid 13% interest on the margin loan and never faced a margin call. Niagara paid dividends of $1 per share during the year. a. At the end of the year, if Ed sold the Niagara stock for $40 per share, what would Ed s rate of return be for the year? b. At the end of the year, if Ed sold the Niagara stock for $20 per share, what would Ed s rate of return be for the year? c. Recalculate your answers to parts (a) and (b) assuming that Ed made the Niagara stock purchase for cash instead of on margin.
Transcribed Image Text:Ed Delahanty purchased 500 shares of Niagara
Corporation stock on margin at the beginning of the
year for $30 per share. The initial margin
requirement was 55%. Ed paid 13% interest on the
margin loan and never faced a margin call. Niagara
paid dividends of $1 per share during the year. a. At
the end of the year, if Ed sold the Niagara stock for
$40 per share, what would Ed s rate of return be for
the year? b. At the end of the year, if Ed sold the
Niagara stock for $20 per share, what would Ed s
rate of return be for the year? c. Recalculate your
answers to parts (a) and (b) assuming that Ed made
the Niagara stock purchase for cash instead of on
margin.
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