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Technology Stocks : Compaq
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To: Loki who wrote (15889)2/1/1998 3:51:00 PM
From: Tmanquinn   of 97611
 
You erred in the sense that without margined securities you would have earned growth on only half the stock. Therefore to meet a tax equivalent yield of 8-9% for t-bonds. One only needs to earned that much on margined securities.

Ex. $100k in t-bonds earns tax equiv- $8-9k annually.
$100k in stock with 8-9% stock appreciation earns $8-9k annually.
$100k in margined stocks ($200k of stock) with 8-9% stock appreciation earns $16-18k annually, less margin interest $7-9k yields about $8-10k.

You see, you only need to earn 8% to break-even compared to treasuries. If you earn 10% on margined securities or higher, your profit grow exponentially.
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