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Re: Gearing / Margin Lending

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Posted by Mark on July 26, 2000 at 08:42:52:

In Reply to: Gearing / Margin Lending posted by Danny on July 26, 2000 at 00:54:59:

: Is there a way to track a margin lending account with Fund Manager? I have tried to think of ways to use a Cash account, but I think FM would still calculate ROI Yields as if the loan was actually my own money.

: Example:
: If I bought $10,000 worth of shares using $5,000 of brrowed money and after 1 year the shares are worth $12,000, then I would expect an ROI of 40% ($2,000 profit divided by $5,000 of my own money). Even better, if the loan was taken out at a rate of 10%pa, then the ROI would be 30% ($2,000 profit less $500 in interest payments, divided by $5,000 investment).

Hi Danny,
If you track both the margin account and investment in the same portfolio,
the total portfolio yield will combine the effects of both investments.
A margin account can be tracked like a cash account, but with a negative share
balance, and a constant price of $1. When you pay margin interest record
this is a negative interest income distribution.
If you were interested to do so, you could also create a portfolio of just
your investment made on margin, and your margin account. This would get you
the yield of the two combined.
In your example, there is no method for calculating just the single
investment's yield based on the $5000 of your money, it would be based on
the total $10,000 invested. You would have to do the portfolio of the
2 investments (investment & margin) in order to get the combined return of
the two together.

Mark Beiley

Fund Manager for Windows 3.1x/95/98/NT

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