I came across a simplified way of calculating the return on a margin trade when going through the Q-bank questions…for some reason Schweser did not include this shortcut in their notes.
Anyways, you can just take take the return you would realize if it were an all cash transaction and then multiply that by the margin leverage factor (1/initial margin). I don’t believe this will work if the question involves commissions or interest charges though, so be careful.
Anyways, you can just take take the return you would realize if it were an all cash transaction and then multiply that by the margin leverage factor (1/initial margin). I don’t believe this will work if the question involves commissions or interest charges though, so be careful.