Investments, tenth edition

Change in Stock 

Price

End-of-Year Value 

of Shares

Repayment of Principal 

and Interest*

Investor’s Rate 

of Return

30%  increase

$26,000

$10,900

           51%

No change

20,000

10,900

     2

9

30% decrease

14,000

10,900

2

69

* Assuming the investor buys $20,000 worth of stock, borrowing $10,000 of the purchase price at an 

interest rate of 9% per year.

Table 3.1

Illustration of buying 

stock on margin

bod61671_ch03_059-091.indd   79

bod61671_ch03_059-091.indd   79

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6/18/13   7:44 PM

Final PDF to printer

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 eXcel APPLICATIONS: Short Sale 

 T

he Online Learning Center (  www.mhhe.com/bkm  ) con-

tains this Excel spreadsheet model, built using the text 

example for Dot Bomb. The model allows you to analyze 

the effects of returns, margin calls, and different levels of 

initial and maintenance margins. The model also includes 

a sensitivity analysis for ending stock price and return on 

investment.