Karen Purchased a Stock Priced at $33 on Margin, Paying

question 32

Multiple Choice

Karen purchased a stock priced at $33 on margin, paying $23 and borrowing the remainder from a brokerage firm at 15 percent annual interest. The stock pays an annual dividend of $2. If Karen sells the stock after one year at a price of $50, what is her return on the stock?

• A)27.60 percent
• B)82.61 percent
• C)76.09 percent
• D)58.70 percent
• E)None of these are correct.

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Definitions:

Straight-Line Amortization

A method of calculating the depreciation of an asset or the repayment of a loan in equal installments over a specified period of time.

Accrued Interest

Interest that has accumulated but remains unpaid.

Discount on Bonds Payable

The difference between the face value of a bond and its lower selling price before maturity, reflecting investor perceptions of risk or interest rate differences.

Adjusting Entry

An accounting entry made at the end of an accounting period to allocate income and expenditure to the correct period for a more accurate financial statement.