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Emily bought 200 shares of ABC Co. stock for $29.00 per share on 60% margin. Assume she holds the stock for one year and that her interest costs will be $80 over the holding period. Ignoring commissions, what is her percentage return (loss) on invested capital if the stock price went down 10%

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Tundexi

Answer:

-19%

Explanation:

Emily 200 shares at $29. So, cost of shares = 200 * $29 = $5,800

Margin is 60%. So, cash investment = $5,800 * 60% = $3,480

Stock price went down by 10%. So selling price of stock = $29 x 90% = $26.10

Sale value of stock = 200 * $26.10

Sale value of stock = $5,220

Gross profit / (Loss) = Sale value - Cost

Gross profit / (Loss) = $5,220 - $5,800

Gross profit / (Loss) = ($580)

Net loss = Gross profit / (loss) - Interest cost

Net loss = (580) - 80

Net loss = ($660)

% of loss on cash investment = (Loss / Investment) * 100

% of loss on cash investment = (-$660/$3,480) x 100

% of loss on cash investment = -18.97%

% of loss on cash investment = -19%

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