Calculate the annual return

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Q1) 600 shares are purchased on the margin at the beginning of the year for $40 per share. The initial margin requirement was 55%. Interest of 10% was paid on the margin loan and no margin call was ever faced. A dividend of $2 per share is received. Calculate the annual return if:

a. The stock are sold for $45 per share at the end of the year;

b. If the stock are sold for $25 per share at the end of the year.

c. Calculate the return for (a) and (b) if the purchase had been made using cash instead of on the margin.

Q2) The XYZ Corporation pays a dividend of $1 for each share, and its required rate of return is 8%.

Answer the following questions:

a) Assuming zero growth in dividends, what is the value of each share?

b)Now assume a 4% annual growth rate in the dividend paid. What is the value of each share?

c) Assume the growth rate is still 4%, but the required rate of return drops to 6%. What is the new value of each share

Reference no: EM132607428


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