An investor buys a stock on margin and holds the position for one year.

Shares purchased - 700

Purchase price - $22/share

Call money rate - 4%

Dividend - $0.60/share

Leverage ratio - 1.6

Total return on the investment - 12%

Assuming that the interest on the loan and the dividend are both paid at the end of the year, the price at which the investor sold the stock is *closest* to:

Answer given:

Gain from price appreciation = Total return − Dividend + Margin interest |$1,155 − $420 + $231= $966

|Price at which investor sold the stock = Gain from price appreciation per share + Purchase price |($966/700) + $22 =$23.38

Can someone please explain why we are subtracting the dividend and adding the margin interest in the gain from price appreciation? Doesn’t make any sense to me. Thank you! ( this is taken from a CFA level 1 book practice question.