Bill Campbell invested $3,200 and borrowed $3,200 to purchase shares in Kellogg. At the time of his investment, Kellogg stock was selling fo

Bill Campbell invested $3,200 and borrowed $3,200 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 $3,200 and borrowed $3,200 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

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  1. Answer:

    Bill Campbell

    a) The number of shares that Bill could buy = 122.06 shares.

    b) The total profit after commissions = $465.42

    Explanation:

    a) Data and Calculations:

    Investment from own funds = $3,200

    Investment on margin = $3,200

    Total investment = $6,400

    a) If Bill paid a $53 commission, the number of shares that he could buy if he used his $3,200 and borrowed $3,200 on margin to buy Kellogg stock, with Kellogg’s stock selling for $52 a share is:

    Total investment =       $6,400

    Less commission                53

    Investment on shares $6,347

    Number of shares = 122.06 ($6,347/$52)

    b) Sale of stock:

    Sales value = $57 * 122.06 = $6,957.42

    Total commission =                       92.00

    Net value from sale =            $6,865.42

    Cost of investment =             $6,400.00

    Profit on investment =              $465.42

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