You Purchased 100 Shares of Common Stock on Margin for $50

question 53

Multiple Choice

You purchased 100 shares of common stock on margin for $50 per share. The initial margin is 50%, and the stock pays no dividend. What would your rate of return be if you sell the stock at $56 per share? Ignore interest on margin.

• A) 28%
• B) 33%
• C) 14%
• D) 42%
• E) 24%

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Definitions:

Time-Value

The principle that money available now is worth more than the same amount in the future due to its potential earning capacity.

Irving Fisher

An American economist, statistician, inventor, and Progressive social campaigner known for his contributions to economic theory.

Credit Risk

The risk of loss resulting from a borrower's failure to repay a loan or meet contractual obligations.

Compounded Interest

Interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.