Today, You Are Purchasing 100 Shares of Stock on Margin

question 34

Multiple Choice

Today, you are purchasing 100 shares of stock on margin. The purchase price per share is $35. The initial margin requirement is 70% and the maintenance margin is 30%. The call money rate is 4.5% and you are charged 1.6% over that rate. What will your rate of return be if you sell your shares one year from now for $37 a share? Ignore dividends.

• A)5.55%
• B)6.42%
• C)7.18%
• D)7.49%
• E)8.03%

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Definitions:

Inverse Demand Function

A mathematical representation showing how the quantity demanded of a good or service changes as its price changes, holding everything else constant.

Unit Tax

A tax that is imposed on a product based on a fixed amount per unit, rather than a percentage of the price.

Output

The cumulative quantity of products or services generated by a business, sector, or economic system over a given timeframe.

Profit

The financial gain achieved when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes needed to sustain it.