Question

You purchase 100 shares of MunTee ltd on 54 percent margin when the shares are selling at K20 each .The Lusaka stock exchange broker charges you 10 percent annual interest, and commissions are 3 percent of the total stock value on both the purchase and the sale.if a year later you receive a K0.50 per share dividend and sell the stock for K27.what is your rate of return on investment? 10marks

Answer 1

Initial investment:

$(100×20×0.54)=K 1080$

Charges:

$100×0.1×0.03)=324$

Selling price:

$(100×0.50×27)=K 1350$

Rate of return:

Subtracting charges from initial investment and selling price we remain with:

Initial investment$=$ 1080$-324=756$

Selling price$=$ 1350$-324=1026$

Rate of return$=1026-756=270$