An Investor Purchased Orange Computer on Margin for $30 a Share

question 65

Essay

An investor purchased Orange Computer on margin for $30 a share. The stock's price subsequently increased to $50 a share at which time the investor sold the stock. If the margin requirement were 60 percent and the interest rate on borrowed funds were 7 percent, what would be the percentage earned on the investor's funds (excluding commissions)? What would have been the return if the investor had not bought the stock on margin?

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Definitions:

Instant Prizes

Awards or rewards given immediately upon winning or achieving a particular aim, often used in promotional marketing to encourage participation or purchase.

Point-Of-Purchase

Locations or displays in a store where customers make purchasing decisions, often strategically designed to increase impulse buys.

Product Trial

An opportunity for customers to use a product on a limited basis before making a purchase decision, often used as a marketing strategy.

Sales Promotion

Marketing activities that aim to temporarily increase interest, demand, or sales of a product or service through incentives or discounts.