Question

Bill Campbell invested $\$3200$ and borrowed $\$3200$ to purchase shares in Kellogg.

At the time of his investment, Kellogg stock was selling for $\$52$ a share

(a) If Bill paid a $\$53$ commission, how many shares could he buy if he used his $\$3200$ and borrowed $\$3200$ on margin to buy Kellogg stock?

(Round your answer to $2$ decimal places.) Number of shares

(b) Assuming Bill did use margin, paid a $\$92$ total commission to sell his Kellogg stock, and sold his stock for $\$57$ a share, how much profit did he make on his Kellogg investment? (Use the number of shares computed in part (a) rounded to $2$ decimal places.

Round your final answer to $2$ decimal places.) Total profit after commissions

Answer 1

Data and Calculations:

Investment from own funds $=\$3200$

Investment on margin $=\$3200$

Total investment $=\$6400$

$a)$ If Bill paid a $\$53$ commission, the number of shares that he could buy if he used his $\$3200$ and borrowed $\$3200$ on margin to buy Kellogg stock, with Kellogg's stock selling for $\$52$ a share is:

Total investment $=\$6400$

Less commission $53$

Investment on shares $\$6347$

Number of shares $=\frac{6347}{52}=122.06$

$b)$ Sale of stock:

Sales value $\$57\times 122.06=\$6957.42$

Total commission $=92$

Net value from sale $=\$6865.42$

Cost of investment $=\$6400$

Profit on investment $=\$465.42$