Question

andy hastings borrowed 500 shares of stock from a broker. this stock is currently selling for $25 a share ($12500). the commission was $125 . three weeks later the price of the stock was $22.50 a share so he bought the 500 shares. the commission was $115. he returned a stock certificate for 500 shares to the broker. what is the rate of return?

Answer 1

The  the rate of return is 8.9%.

Rate of return on the shares = total cost of borrowing - total cost of buying) / total cost of buying

Total cost of borrowing = cost of shares - commission

$12500 - $125 = $12,375

Total cost of buying = total cost of shares - commission

total cost of shares = $115 x 500 = $11,250

$11,250 +  $115 = $11,365

Rate of return = ($12,375 - $11,365) / $11,365 = 0.089 = 8.9%

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