Municipal Bonds Comparable Returns

Tax free
Issue price 1000
Interest rate 5.5% 4.0%
Tax bracket 30%

Interest income 55
Tax expense 16.5
Net income 38.5
Net interest rate 3.9% 4.0%
Price-weighted Average
Shares Initial value of Final value of
Intial Final (million O/s stock ($ O/s stock ($
Stock price price ) million) million)
ABC 25 30 20 500 600 20%
XYZ 100 90 1 100 90 -10%
Total 125 120 600 690

Index return 62.5 60 -4.0%

Note:
High price share gets more weightage i.e. XYZ shares

Stock split
Shares Initial value of Final value of
Intial Final (million O/s stock ($ O/s stock ($
Stock price price ) million) million)
ABC 25 30 20 500 600 20%
XYZ 50 45 2 100 90 -10%
Total 75 75 600 690
37.5 37.5 0.0%
Calculate devisor to keep average same
(25+50)
`= 62.5
d

d 1.2
`
(30+45)
`= 62.5
1.2

Index return 0.0%

Value-weighted Average
Shares Initial value of Final value of
Intial Final (million O/s stock ($ O/s stock ($
Stock price price ) million) million)
ABC 25 30 20 500 600
XYZ 100 90 1 100 90
Total 125 120 600 690

Index return 15.0%

Note:
High market cap share gets more weightage i.e. ABC shares
Value-weighted average remains unaffected by stock splits as market cap/value adjust by price and no of shares o/s

Shares Initial value of Final value of

Intial Final (million O/s stock ($ O/s stock ($
Stock price price ) million) million)
ABC 25 30 20 500 600
XYZ 50 45 2 100 90
Total 75 75 600 690

Index return 15.0%

price and no of shares o/s
 Ending Return on Ending
St Price Investment St Price
Initial Equity Investment 10,000 20 -121.60% 20
Amount Borrowed 10,000 25 -101.60% 25
Initial Stock Price 50 30 -81.60% 30
Shares Purchased 400 35 -61.60% 35
Ending Stock Price 80 40 -41.60% 40
Cash Dividends During Hold 0.6 45 -21.60% 45
Initial Margin Percentage 50% 50 -1.60% 50
Maintenance Margin Percentage 30% 55 18.40% 55
Rate on Margin Loan 8% 60 38.40% 60
Holding Period in Months 6 65 58.40% 65
Return on Investment 70 78.40% 70
Capital Gain on Stock 12,000 75 98.40% 75
Dividends 240 80 118.40% 80
Interest on Margin Loan (400)
Net Income/losss 11,840
Initial Investment 10,000
Return on Investment 118.4%
Return with
No Margin
-58.80%
-48.80%
-38.80%
-28.80%
-18.80%
-8.80%
1.20%
11.20%
21.20%
31.20%
41.20%
51.20%
61.20%
 Ending Return on
St Price Investment
Initial Equity Investment 50,000 170 -140.00%
160 -120.00%
Initial Stock Price 100 150 -100.00%
Number of Shares Sold Short 1,000 100000 140 -80.00%
Ending Stock Price 115.38 130 -60.00%
Cash Dividends per Share 0 120 -40.00%
Initial Margin Percentage 50% 110 -20.00%
Maintenance Margin Percentage 30% 100 0.00%
90 20.00%
Return on Short Sale 80 40.00%
Capital Gain on Stock (15,380) 70 60.00%
Dividends 0 60 80.00%
Interest on Margin Loan 0 50 100.00%
Net Income (15,380) 40 120.00%
Initial Investment 50,000 30 140.00%
Return on Investment -30.8% 20 160.00%
10 180.00%
Margin position
Margin Based on Ending Price 30.0%

Price for Margin Call 115.38