Allan purchased 800 shares of stock on margin for $31 a share and sold the shares five months later for $33.50 a share. the initial margin requirement was 65 percent and the maintenance margin was 30 percent. the interest rate on the margin loan was 7.5 percent. he received no dividend income. what was his holding period return?

Holding period return = 4.94%

Explanation:

Given that :

Allan purchased 800 shares of stock on margin for $31

And He sold it at the rate of $33.50 after five months.

Initial Margin requirement = 65%

Maintenance Margin = 30%

Interest Rate on Margin loan = 7.5%

The Holding period return can therefore be calculated by the formula:

Holding period return =  (sale price - purchase price - interest paid )/Purchase price

where ;

31 × 800 = 24800

Interest for five month = 5/12

Holding period return = (33.50-31)×800 - (7.5% ×24800× 5/12) / 24800

Holding period return = (2000-775)/24800

Holding period return = 0.0494

Holding period return = 4.94%

the investment was $14,174.196

explanation:

a lump sum means that the father of the example made one deposit and leave it be.

we need to know the value of a capital that generated at 4.05% per year during 28 years the sum of $48,613.24

now clearing the formula to solve for capital we got:

and we reach the answer investment = $14,174.20